Though it means sacrificing more at his end when the value of the rupee appreciates against the dirham, Mohammad Rafi is a little blasé about the fluctuating exchange rates.
That feeling is not without a reason. He has witnessed the value of rupee going up and down many times in the last 16 years. He has seen one dirham fetching more than Rs14 as in March of last year. He has also seen it plumb the low depths of Rs 10.65 in 2007.
Rafi, 36, who today runs his small independent transport business in Abu Dhabi, has been remitting part of his earnings home since he first came to the UAE.
For the past few years, the amount sent has remained constant every month. He sends Rs15,000 to his family in Guruvayur town in Kerala, where his wife and two young children reside with his parents.
"Of course it hurts when the rupee value strengthens, but what can you do? But never do I send a penny less to home," says Rafi. "They need that money. I make adjustments to my spending here."
He also remits between Rs25,000 and Rs30,000 to his home country bank as repayment amount towards a personal loan of Rs300,000. This amount is also largely constant, he says, as it is never less than Rs25,000.
From the peak of Rs14.25 in March 2009, the rupee has appreciated against the dirham by about 10.45 per cent. That means one gets fewer rupees per dirham now. In mid-April this year, when rupee reached a 19-month high, one dirham had dropped to Rs 12. With rupee weakening this month and accelerating in the last few days, smiles in the faces of expatriates are slowly returning. On Friday, a dirham was valued at around Rs12.76.
For many Indian expatriates in the UAE, particularly of the lower socio-economic bracket, a stronger rupee means less money being transferred to India to meet the obligations back home. Their families have to deal with a lesser amount and at times bear some form of hardship.
In some cases, when the rupee appreciates, some expatriates who are earning less dig into their savings here and even take loans to keep their families happy.
"Any time it happens, the strengthening of the Indian rupee it is a very serious problem for low and middle income expatriate workers in GCC countries," says K.V. Shamsudheen, partner and director at Barjeel Geojit Securities (LLC). As chairman of the Pravasi Bandhu Welfare Trust, he advises Indians struggling with debt-related issues.
"Having gotten used to a certain lifestyle, the families at home keep demanding the same amount, if not more and do not realise the sacrifices being made by the earner here. It compels them to take a loan pushing them into a debt cycle."
However, there are other Indian immigrants whose families back home do not regularly depend on their remittances. They can afford to wait and track the currency movements and then send money home.
"Compared to the ones who remit monthly, mostly labourers and middle class who have families back home, the ones who wait and send, though low on volumes are usually big tickets," says Sudhir Kumar Shetty, CEO of UAE Exchange. "That is, when they remit, it's a big amount. They are willing to wait for the best rate."
Mostly, they send money to India for purely investment purposes, whether it be in stocks, mutual funds, corporate bonds, fixed deposits or real estate.
A teacher in Ras Al Khaimah, B.R. Chaudhury, 45, is one such expatriate who sends money when the rate is good. She sends money two or three times a year and the amount is usually in the range of Dh10,000 or more, mostly for real estate investments.
"I always send fairly large lump sum amount to my bank in India when the rate is good to pay for my monthly repayments of the loan towards a real estate investment and other expenses when needed," says Chaudhury.
The dirham being pegged to the dollar essentially means movements in the dollar, seen in recent days amid the euro zone crisis, affects the strength of the rupee. Not to forget, the rupee's fortune is also closely linked to the foreign fund flows into India and stock market sentiments.
The outcome of the gains in the rupee over the last year and a half has been on the back of steady gains in Indian stock markets, says Pradeep Unni, senior analyst at Richcomm Global. Last year record foreign institutional investors' inflow of $17.5 billion into the Indian stock market helped the rupee rise 4.7 per cent.
This month, however, the rupee has slipped. That is especially on the back of the weakness in stock markets and fears of foreign institutional investors pulling out of Indian equities. Foreign funds have already pulled out around $987 million from Indian equities so far in 2010, and there are concerns the pressure may continue until the euro zone situation improves.
The latest outflows have played a role in pushing the rupee down 4.3 per cent in May, trimming gains in 2010 to just 0.4 per cent. So for expatriates here, weaker the better, which means transferring more rupees in the hands of their family members or into investing in equities and other assets in India.
Taking into account the recent developments in the global financial markets and more importantly the chaos in the euro zone, a potential correction is impending in the Indian stock markets and this hints that the rupee could weaken a bit more against the dollar in the coming weeks, Unni says.
Further ahead, the currency might get marginally weaker, but the weakness might be limited to between Rs47.50 and Rs48.50 to the US dollar as a potential long due correction in stocks might end by then, he adds.
"Thus expats can wait for a few more weeks to send their money home as they would get better exchange rate by then," Unni says. "At the same time, stocks would also reach levels to re-enter."
However, taking into account the underlying fundamental strength of the economy, the bullish outlook for the rupee beyond six months is intact, he says. But a general cautionary note is sounded when it comes investing in equities, perhaps the riskiest asset class.
"Having known that stock market is more of ‘tangled web' with too many factors playing at the same juncture and no factor can be discounted to the other, it's prudent to diversify the investment in different asset classes so that the risk is diversified," Unni says.
Opting to hedge the currency risk
In light of the recent currency fluctuations, the more savvy investors could very well opt to hedge the currency risk, Pradeep Unni, senior analyst says.
That opportunity is available for such investors right here, whereby the risk can be hedged in the Indian rupee contract on the Dubai Gold and Commodities Exchange (DGCX).
"Alternatively investors can also invest in the Indian currency for pure investment sake as the underlying strength in the economy is reflected in the currency too," Unni adds.
The DGCX contract is the only Indian rupee futures trading contract outside India which provides the opportunity of profit from movements in the Indian currency. The contract is a boon to all Indian expatriates in the Gulf and other countries as the Reserve Bank of India [central bank] effectively prevents nonresident Indians from trading in the same contract traded in India.
"Smaller size contracts with low margins with extended market hours make the contract an ideal one for both institutional and retail investors," Unni says. "We currently see a lot of investors visiting us to understand and trade this product."
Also, being a developing currency, the rupee is subject to significant volatility. Money funds in the form of some offshore Indian rupee funds are a relatively low-risk way to grow one's investment. But he points out, such funds are typically for investors who posses large capital and aren't dependent on a regular income from it but might need to access it at short notice.
As far the accounts are considered, given the same argument that the rupee is volatile, it's ideal to keep the US dollar as base currency, Unni adds. Some quick minded investors will transfer funds to India when the rupee grows weaker and repatriate them back to US dollar accounts when the rupee grows stronger. This was quite evident when the rupee went past 50 to the US dollar in March and April of 2009, and reversing back at Rs47-Rs46 levels. The result was a pure gain of Rs3 to Rs4 on idle funds.
Have your say
How have you been affected by the fluctuations in the value of the Indian Rupee? When sending money to India, what currency do you use for the transaction? Tell us.