Indian rupee, Indian currency
The rupee touched as high as 19.21 against the UAE dirham today. Image Credit: Pixabay

The Indian rupee took a plunge on Monday — falling as low as 1.4 per cent against the US dollar — the highest since December 11. The rupee touched as high as 19.21 against the UAE dirham as Indian stocks crashed.

Added to this, experts in the UAE say worries over the political situation in Jammu and Kashmir are further weighing on the currency.

TK Raman, chief financial officer, Finance House

“The Indian rupee will experience a further dip as there are a number of factors including a slowing economy, rising inflation, tensions brewing in Jammu and Kashmir which are likely to drag the currency down further,” said TK Raman, group chief financial officer, Finance House PJSC.

“I will not be surprised if we see the rupee touch as high as 20 against the UAE dirham in the coming month,” he said.

Raman said: “Primarily, the dip in the Indian rupee has been due to several factors. The rate of growth in the country has slowed down. There are definite indicators of a temporary slow-down in the economic growth of the Indian economy. That is obviously reflected in the Indian stock market reaction which crashed on Monday (August 5). In fact July was one of the worst-performing months for the Indian stock market.”

Experts said the recent pull out of foreign portfolio investors (FPIs) from India is likely to add to the woes of a weakening economy.

Take this: reports in India said amounts close to Rs 2,881 crore were pulled out from the country's capital markets during the first two sessions of August.

This is on account of the domestic and global situation. Further, announcement of rate cuts by Fed in the US have evoked confused reactions, adding to uncertainty in the country.

What does this mean for the non-resident Indian (NRI) living in the UAE?

Ajay Shukla, co-founder and chief strategy officer, Higher Education UAE

Ajay Shukla, co-founder and chief strategy officer, Higher Education UAE said there is a definite benefit for NRIs who regularly remit money home as they are gaining from the currency dip. “For expats whose families depend on their income from the UAE will be able to send home more money. It will be as if their monthly salaries have risen,” he said.

Shukla said other ways that NRIs can benefit from the rupee dip are by investing in bonds and interest bearing securities.

Keep a close eye on markets back home

Shukla said: “Look at long-term economic fundamentals of the economy. Right now the overall demand in the country is weak mainly because people are being cautious and spending less so they can save more. There is also the looming concern of unemployment in the country.”

“India's biggest automaker, Maruti Suzuki India Ltd (MRTI.NS), said it cut the number of its temporary workers to cope with a slowdown in auto sales.

The vehicle industry, accounting for nearly half of India's manufacturing output, is facing one of its worst slowdowns in nearly a decade, with vehicle sales falling rapidly,” said Shukla adding that there is a need for structural reforms in India at the moment.

Keep an eye out for trends, he said.

Venkat Sarma, banking and risk management consultant

Venkat Sarma, banking and risk management consultant said: “NRIs can take advantage of the currency and stock market dip by investing in select blue chip stocks which have fallen. It may be a good time to enter the Indian stock market now. Gold too has appreciated since the middle of May by around 10 per cent. Going by the market scenario, it is likely to go up further. So NRIs can think of this investment vehicle as well.”

Is it worth taking a personal loan from the UAE to repay home-loans in India?

Personal loan interest rates in the UAE are low in comparison to home-loan rates in India, so is it worth taking the former to repay the latter especially since the currency has been dipping?

Raman said: “One has to weigh this option after considering the employment position of the person. Remember, if someone takes a personal loan from the UAE and is not able to service it, they will be in bigger trouble.”

“Back home, there is more stability and other sources of income to depend on. I would not necessarily advise somebody to do that. However, the weakness in the rupee may compensate for the additional interest burden. According to me, that is five to six per cent. With rupee being weaker by three to four per cent, one may get compensated anyway.”

He said the next 30 days will be crucial. “I would advise NRIs in the UAE to keep a close watch on trends. A lot of stocks are looking more reasonably priced. If this weakness in the stock market persists for three months or so, there could be investment opportunities in stocks. The real estate market prices also have softened. It is a buyer’s market today so NRIs can look at this as well.”