Rupee Fall and Market Returns
It is very important to understand how the fall in the Indian rupee affects the stock market. Over the last many years, whenever the rupee has fallen strongly against the US dollar, there has been a clear pattern in the market. Big movements in USD/INR have been seen in different periods like 2008, 2011, 2012, and 2013. In all these times, the rupee lost value quickly.
Past Data Shows a Clear Trend
When we look at the past data, something very interesting comes out. After every big fall in the rupee, the stock market has given strong returns. On average, the one-year return has been close to 40 percent. This is a very big number and not something we see regularly.
Returns Over Longer Time
If we look at a longer period, the trend still looks strong. The average three-year return has been around 19 percent. For five years, it has been close to 16 percent. These numbers show that even if the market looks slow at present, it has the power to give good returns over time.
Why This Happens
This happens mainly because inflation increases when the rupee falls. Because of this, the returns we see are mostly nominal returns, not real returns. Real returns may feel lower, but still, the overall numbers look strong. This gives the feeling that the market is doing very well.
Current Situation and Expectations
At present, the rupee has fallen by around 11 percent, which is lower than past big falls like 15, 18, or even 30 percent. So even if the returns this time are lower than before, they can still be good. Even if returns drop from 40 percent to 20 percent, or from 19 percent to 15 percent, it is still a decent outcome.
Stay Patient in the Market
There is no need to feel disappointed with the market right now. Sometimes the market goes through a time correction where nothing much happens for some time. This phase can be one of those periods. Staying patient is important because good phases usually follow such slow periods.
