Saving your personal finance in the heat of falling value of rupee

The break in over your saving and investment by the weakening rupee is intensifying by the day. Under the situation, you need to adopt double strategy on the front of your personal finance. The article suggests some ways and means of adopting the kind of strategy you should delve in to save your investment portfolio as the falling value of rupee would eat away your entire hard-earned money within no time.

There are two strategies with which you could move ahead to save your investments, First is to keep your savings safe i.e. not to take routes to further investment where the risk factor is higher. The products with universal guarantee are ideally the best. Increase your investment into PPF with your eyes wide shut. Never forget investing into the NPS (National Pension Scheme). Keep your money in banks' FDs and post office recurring deposit. You could think of investing into the government bonds.

You could take the routes to the fixed maturity plans (FMP) of mutual funds. NRI investment into real estate is excellent. The general investors could wait until the passage of the real estate bill pending in parliament. Keep yourself off the limits of temptations of investing in gold. However, before we delve farther into this subject, let us come to understand clearly, why the tumbling rupee is so important for your savings and investments.

Bewilderment of decisions taken in the investment world

Let us focus on latest three decisions taken in the investment world. The RBI has taken the step to bridle dollar from going out of the country recently. The remittance (sending the dollar abroad) limit has been reduced from two-lac dollar to 75000 dollar. Companies have been told to invest in foreign equivalent to their total asset (100 per cent) only. Formerly, this limit was up to 400 percent. The government has imposed restrictions on bringing LCD, LED and Plasma TV while returning back home from trips abroad. All these three decisions have sent one message. India is poised to make amends in its liberalization policy of 1991. The decade of capital control is again coming back. Due to this reason, a record fall in value of rupee was witnessed. It did touch the lowest minimum mark of 65.56 rupees per dollar.

High rate of interest and increased EMIs

You can see the direct impact in fall of rupee on interest rates. Concerns were being expressed from before also for the increase in the interest rates on loans. The private sector banks namely the ICICI and HDFC had pegged their base rate by 0.25 %. Now the burden on home loan and car loan would increase. Here, this needs to be understood that if the foreign investment is to be invited in an emerging economy, interest rates will have to be increased. This means the difference between inflation rate and the interest rate payable on savings will have to be raised upwards. Now, the doubt of increase in inflation is being raised by the fall in rupee. In the one hand, the retail inflation is breaking the waists of people already from before, on the other. Under the scenario, the weakening of rupee has thinned the possibilities of lessening of interest rates on the probable effects on wholesale rate.

Rupee is headed where to?

The trend of commodity transactions is showing that rupee in forward market is doing business at the 65.97 mark per dollar and upon this basis, this much could be said if the situation did not improve, it could cross the 67 mark per dollar easily. No wonder people are befuddled presuming the growth story to be over now. Experts are also agreeing that as for the present, in America, the stimulus package has not yet arrived. After its beginning, American capital will take flights to other emerging economy. As a result, there would be a fall in the currencies of these emerging nations. Upon this basis, in a state of panic, it would not be surprising if rupee crosses the mark of 70. Interest rate on government bonds in America has been raised and investors are taking the routes to the debt market. The falling rupee in India has beaten their returns on investments here. Nervous has gripped the investors after the steps taken by RBI and the finance ministry.

India's grading could slide down to junk category

At the present juncture, what the investors are dreading about the most over the score of falling rupee is the possibility of further fall in credit rating by the international grading agencies. Standard & Poor's opines that in the midst of the falling value of rupee and doubts sweeping the minds of investors, the 'BBB Negative' grading of India is well preserved as of now. The company's ratings of borrowers veers on a scale from AAA to D. Transitional ratings are also offered at each level ranging between AA and CCC (e.g., BBB+, BBB and BBB-). BBB negative rating is the lowest for investment. If India comes just below a ladder down from this level, it would mark its sad entry into the junk category for investment purposes. One other rating agency Fitch has to say that there is no specific reason as of now for India to be graded farther lower down and stable rating for India is maintained as usual. Nevertheless, even after this, if the fall in confidence of investors is not stalled, there is every possibility of rating further tumbling down. The third rating agency MOODY has this to say that the burden of the oil subsidy would mount up by the falling value of rupee, which would further escalate current budgetary deficits. In the midst of this imbroglio, it is essential to understand this that if the credit rating comes to the 'Junk Level', foreign investment shall not arrive in India until next year. If this happened, it is but natural for its impacts to fall on the growth rate. Under such a scenario, forget returns on your investments.

Wrap up with a piece of honest advice

Rupee checked its downslide on Friday last but only after the intervention of the RBI. Owing to the lack of confidence of the foreign investors, the series of fall in rupee continues. The Friday recovery was due to the technical factors. Several foreign firms and brokerage firms are downgrading India. The environment from the viewpoint of investment has worsened. In the event of further downgrading in ratings, rupee could touch the 70 mark. Later on, it would try to find its level around 62-65. This whole cycle might take the time up to the month of December. CRISIL has expressed its view by adding the possibility of the rupee coming at the level at 60 by the end of March next.