The rupee is likely to rise against the dollar by a further 1-2 per cent in the following months, says a report by an investment banking firm Credit Suisse.
“The rupee appreciation is sharp and here to stay,” the report says and adds that its impact is material for many and can no longer be ignored as cyclical.
The rupee touched a high of 40.53 to a dollar on Monday, its highest since May 1998, according to Reuters data, and ended the day at 40.87.
The appreciation in the Indian currency is expected to put pressure on export firms that bill in dollars, says the report.
It mentions how software and service exporters face profit pressure because most of their earnings are in dollars. “In a way, the rupee appreciation has significantly reduced the defensive appeal of the information technology and drug industries," says Credit Suisse.
Drug firms like Dr Reddy's, Cipla and Lupin will see a dip in their profits because of weak pricing power on exports.
Hotels and transportation companies, too, will be affected to the level of their exposure to dollar revenues, the bank says.
“Net foreign exchange earnings make up 51 per cent of sales at Tata Consultancy Services, 56 per cent at Infosys and 35 per cent at Wipro. They comprise 33 per cent of sales at Dr Reddy's, 31 per cent at Cipla and 20 per cent at Lupin,” the report points out.
According to the report, sectors that may benefit from an appreciating rupee are commodities, media, construction and engineering.