Rising bond yields are already suggesting that RBI might raise rates again in its next policy meeting by another 25 bps.
Are you worried about your mutual fund portfolio taking a hit because of rupee depreciation? Well, depreciation alone will not impact your portfolio but the rise in bond yields could impact fixed income portfolio and action on specific stocks could lead to lower net asset values (NAV) for specific funds.
But, a well-diversified portfolio is unlikely to get impacted by rupee depreciation, suggest experts. The currency touched a new low of Rs 72.67 versus USD on Monday and experts feel that it could touch levels around Rs 73/USD in the near term.
The stock market is prone to volatility as it is impacted by the macro-micro environment in which a stock operates. Rising bond yields are already suggesting that the Reserve Bank of India (RBI) might raise rates again in its next policy meeting by another 25 bps.
“In this case, optimal diversification and adopting a portfolio approach can help an investor reduce the volatility of the stock market. There is upside risk to inflation forecast. In such a scenario, rupee depreciation along with elevated crude adds risks of further rates hike by RBI. Rising bond yields is already hinting possibility of a further rate hike,” Vineeta Sharma, HOR at Narnolia Financial Advisors told Moneycontrol.
“Fall in currency is not a big issue as far as equity performance is concerned. It is the combination of a rise in crude price and fall in the rupee that is hurting sentiment. However, fixed income funds, particularly on the longer duration side, still face issues as interest rate hardening cycle is not yet over. Looking at the strong corporate earnings revival, equity funds are expected to do better,” she said.
For the 30-year-old investor, an ideal portfolio of MF is Diversified Large Cap Equity 30%, Diversified Multi-Cap Equity 30%, 10% thematic/small-cap fund, 30% Short Term Debt Funds.
Priyank Upadhyay, AVP Commodities Research, SSJ Finance & Securities advises investors to allocate 30 percent in the Fixed Income Funds and the balance 70 percent in Equity Funds via SIP route.
How fast can rupee deprecate?
Investors should also understand that rupee is not depreciating in isolation. Most of the merging market currencies are under threat. The rupee has plunged by about 13 percent so far in 2018 and the fall could extend further towards Rs 73.20/$ zone.
“In near term, we could see a resistance around 72.20/72.50 and we could see a dip lower towards 71.30/70.40 and from there we can gain see a rally towards 72.75/73.20 zones,” said Upadhyay.
Investors should stay away from stocks in OMC, banks and aviation space which might get negatively impacted by the fall in Rupee.
“We expect that rupee could continue to feel the pain in the short term and intervention could restrict the pace but bias for the rupee is still negative. Rupee, in the short term, could test levels of 73.20 and break above 72.15 could negate the view for short-term weakness,” Gaurang Somaiya, Currency Analyst, MOFSL told Moneycontrol.
In near term, we could see a resistance around 72.20/72.50 and we could see a dip lower towards 71.30/70.40 and from there we can gain see a rally towards 72.75/73.20 zones.