The Rupee Hits Record Low: Crisis or Opportunity?
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Today on The Daily Brief:
The Rupee is falling, but why?
The Indian government wants to help shipping companies
TCS Q2 Results: What They Mean for Investors
The Rupee is falling, but why?
Now, we often hear about the rupee appreciating or depreciating in the news, but many of us still find it confusing. So, in today’s story, we’ll break down what’s happening and why it matters to all of us as investors.
To start with the basics, prices—whether for goods, services, or currencies—depend on supply and demand. If demand is high and supply is limited, prices rise. If supply is greater than demand, prices fall.
Currencies work in a similar way. The price of a currency is called the exchange rate, and it’s determined by the demand and supply of two currencies. For example, the rupee and the dollar form a “currency pair.” If more people want the rupee, it appreciates, and if fewer people want it, it depreciates.
Here’s where some of us get tripped up. When the rupee depreciates, its value does drop, but the number you see actually goes up. So, when you hear the rupee has gone from ₹80 per $1 to ₹84 per $1, that’s depreciation, not appreciation. Essentially, when the rupee depreciates, fewer people are interested in holding it, and more people want dollars. That’s why, if someone was willing to exchange ₹80 for $1 before, now they need to pay ₹84 for the same $1.
Now, let’s dive into the main question—why has the rupee hit ₹84 for the first time?
There are two key reasons behind this:
1. Foreign Portfolio Investors (FPIs) pulling money out of Indian stocks.
2. The rising price of crude oil.
Let’s start with FPIs. Their investments are often called “hot money” because they move in and out of markets quickly. When these investors sell off Indian stocks, they get paid in rupees, then convert those rupees into dollars to take their money elsewhere. This increases the supply of rupees in the market, which pushes its value down.
The second factor is oil.
India is one of the largest importers of crude oil, spending about $150 billion a year on it. When oil prices rise, India needs more dollars to pay for it since oil is traded in dollars. So, Indian companies and the government have to exchange more rupees for dollars, weakening the rupee even more.
Now, the bigger question is—what does this mean for the economy?
When the rupee depreciates, exports become cheaper for foreign buyers, which is good for industries that rely on exports, like textiles, IT services, pharmaceuticals, and automobiles.
But on the other hand, imports become more expensive. This is bad for industries like crude oil that depend heavily on imports. Since India imports most of its oil, and oil is priced in dollars, a weaker rupee makes oil more expensive, which raises costs for sectors like transportation, chemicals, and energy.
Everyday goods like electronics and machinery also get pricier, as many of these are imported or rely on imported components. This brings us to another issue—inflation.
As imports get more expensive, the cost of goods that depend on those imports goes up. This drives inflation, meaning everything from fuel to food to consumer electronics starts costing more. Rising prices reduce our purchasing power, making it harder to maintain the same standard of living. The government and central bank may step in to control inflation, often by raising interest rates. But that can slow down economic growth, creating a tough balancing act.
Lastly, let’s think about the impact on investment and debt. A depreciating currency can scare off foreign investors because their returns shrink when converted back into dollars or other currencies. This can lead to capital flight, where investors pull their money out of India, adding even more pressure on the rupee. Depreciation also makes foreign debt more expensive. If the government or companies have borrowed in dollars, they now need more rupees to pay back those loans, which increases the cost of servicing that debt and puts more strain on the economy.
To sum it up, a weaker rupee may help exporters, but it also makes imports more expensive, fuels inflation, and increases risks for foreign investment and debt. It’s a mixed bag, and the effects ripple through the entire economy. Whether we’re buying fuel, running a business, or investing in the market, we all feel the impact of a depreciating rupee.
The Indian government wants to help shipping companies
The Indian government is considering funding a Protection and Indemnity (P&I) insurance entity. If that doesn’t ring a bell, don’t worry—let’s break it down and see why it matters.
P&I insurance is what shipowners use to protect themselves from expensive risks at sea. This can cover anything from accidents involving other ships to oil spills, crew injuries, or even major legal claims. When something goes wrong, the shipowner is responsible for covering the damages or fines. That’s where P&I insurance steps in—it helps cover those costs.
Here’s where things get interesting for Indian shipowners. Right now, they have to go to international P&I Clubs for this kind of insurance. These clubs are groups of shipowners who pool their money to share the risk of big liabilities. P&I insurance covers large, unpredictable events that regular marine insurance won’t—like environmental disasters or big legal claims from accidents.
These international P&I Clubs have been around for over a hundred years and dominate the global market. The largest clubs, part of the International Group of P&I Clubs, insure about 90% of the world’s shipping. So, nearly every ship moving goods worldwide has its risks covered by these clubs. When something serious happens—like a collision or major pollution incident—these clubs ensure the shipowner has the financial protection to handle it.
But for Indian shipowners, relying on these international clubs is expensive. Premiums are especially high for ships sailing through risky areas like the Middle East or Russia. That’s why the Indian government is considering setting up its own P&I insurance entity.
More than a year ago, India’s Finance Minister, Nirmala Sitharaman, mentioned the idea of creating a P&I insurance club in India. But nothing much happened at the time, partly because it’s complicated to set up something like this. You can’t just form a club and start pooling money—you need the right regulatory approvals and legal structures, which India doesn’t have yet.
That’s why the government is now thinking about providing seed money to get things started. They’re even considering changing the Insurance Act to allow the creation of mutual insurance associations—the type of P&I Clubs that already exist internationally. The plan is to kick-start the process with government funding and then bring in private companies and insurers to contribute as well.
So why does this matter if Indian shipowners are already insured by international P&I Clubs? It boils down to control and cost. Indian shipowners are paying high premiums to foreign clubs, especially when they operate in risky regions. The government believes that if India had its own P&I Club, it could reduce those costs for Indian ships and keep more money within the country. It’s also about having more control over the insurance process rather than relying on foreign entities.
There’s a bigger picture here too. The Indian government wants to boost the domestic shipping industry, and having its own P&I Club could be an important step toward that. The idea is to start small—maybe focusing on coastal and river vessels, which carry lower risks—and then gradually expand to cover larger export-import cargo and even international shipping.
Of course, there are challenges. Indian insurers don’t have much experience handling this kind of complex marine insurance, so there’s a learning curve. The government is also thinking about partnering with international players—maybe even existing P&I Clubs—to gain expertise and share the financial load.
While this might seem like a niche issue if you’re not a shipowner, the bigger goal is that India is trying to strengthen its maritime industry and reduce its dependence on foreign services. Shipping is a huge part of global trade, and building more capabilities at home—whether in insurance or shipbuilding—could improve India’s position in the global supply chain.
For now, Indian shipowners will keep paying those international P&I premiums. But if this plan moves forward, we could see a major shift in how Indian ships are insured, with more control and lower costs staying within the country.
TCS Q2 results
Recently, Tata Consultancy Services (TCS) announced their results for the second quarter of FY 2025. As the largest IT services company by revenue in India, TCS’s results give us a good idea of how the entire industry is doing. So, as investors, it’s important to keep an eye on these numbers, and that’s exactly what we’ll do here.
We’ll break down TCS’s revenue growth, how they’re performing in different regions, their push into new technologies like generative AI, trends across sectors, workforce changes, and their overall financial outlook. Let’s keep it simple and easy to follow.
First, let’s start with their revenue and financial performance.
TCS reported revenues of ₹642.6 billion this quarter, which was in line with expectations. That’s a positive, especially given the tough economic environment businesses are facing globally.
However, their Earnings Before Interest and Taxes (EBIT) margin—basically a measure of profitability—dropped slightly, down to 24.1%. To put this into perspective, a drop of 60 basis points is a 0.6% decrease in profitability. This was mainly due to higher third-party costs tied to large transformation projects. Essentially, these big projects are costing them more, which is squeezing their profits.
These margin pressures might stick around for a while, so we may not see improvements right away. This could affect profitability in the short term.
The company’s leadership is “cautiously optimistic.” They expect gradual improvement but acknowledge the current economic uncertainties. Their plan is to tighten costs and double down on generative AI, which they see as a long-term growth opportunity. In the short term, TCS might have to weather a rough patch, but they’re betting that AI will bring big rewards in the future.
Now, let’s look at how TCS performed in different regions:
TCS’s regional performance was a bit of a mixed bag this quarter. Here’s a quick overview:
• North America (their biggest market) saw a slight decline of 2.1% year-on-year in constant currency terms. This suggests that clients in the region are being cautious with their spending, likely due to economic uncertainties.
• The UK did well, growing by 4.6% year-on-year, thanks to strong demand for digital transformation. UK businesses are clearly still investing in upgrading their systems.
• Emerging markets like India, the Middle East, and Africa performed even better. TCS is tapping into local opportunities here, and it’s paying off.
Overall, while regions like the UK and emerging markets are doing well, North America remains a concern since it’s their biggest market. As investors, this is something we need to watch closely because client spending in North America will be key to TCS’s future growth.
Let’s move on to TCS’s big push into AI. This quarter, TCS saw its client engagements in AI projects more than double—from 275 in Q1 to 600 in Q2. That’s a huge jump! Even more impressive, 86 of these projects went live this quarter, compared to just 8 in the previous one. Clearly, businesses are betting big on AI, and TCS is helping them make it happen.
AI is shaping up to be a major growth driver for TCS. With global demand for AI increasing rapidly, this could be a key factor in the company’s growth going forward.
Next, let’s talk about how TCS performed across different sectors:
• BFSI (Banking, Financial Services, and Insurance) showed signs of recovery, especially in North America, which is important since BFSI is a major part of TCS’s business.
• Energy and Resources grew strongly, up 7.0% year-on-year, driven by ongoing investments in digital solutions.
• Healthcare faced some challenges, but these were specific to individual clients, and the company expects things to stabilize in the coming quarters.
• Telecom remained weak, with clients focusing more on projects with guaranteed returns rather than experimenting with new initiatives.
For investors, BFSI’s recovery is encouraging, but it’s clear not all sectors are fully back on track yet. A full recovery across industries might take some time.
On the workforce front, TCS added 5,726 employees this quarter, bringing their total headcount to 612,724. This hiring is aimed at building the company’s expertise in AI and digital transformation—areas that will be critical as TCS continues to evolve.
At the same time, employee attrition (the rate at which employees leave) rose slightly to 12.3%. While this is an increase, it’s still manageable. For a company of TCS’s size, keeping talent stable is key to staying competitive and ensuring projects run smoothly.
To sum it up, TCS’s management hinted that as global economic conditions improve, we could see more discretionary spending from clients—meaning they’ll be freer to invest in bigger, transformative projects. For now, the deal pipeline remains steady, but the real challenge will be turning these opportunities into actual projects.
Tidbits:
In the first half of 2024, UPI transactions surged by 52%, reaching a whopping 78.97 billion. This sharp rise shows how digital micro-payments are becoming the norm in India, with UPI steadily taking over the payment ecosystem.
Air India has placed an order for 85 more planes from Airbus, continuing its aggressive fleet expansion. The airline is ramping up efforts to stay competitive in India’s booming aviation market, though Airbus is still grappling with supply chain issues.
AMD has launched its new MI325X AI chip. Despite this, the company's shares took a hit due to concerns over demand. AMD faces tough competition from Nvidia and Intel, which are both well-established in the AI chip market.
Rising commodity costs, combined with a weaker rupee, are pushing up prices for cars, electronics, and appliances across India. Companies like Maruti Suzuki and smaller electronics brands are increasing prices by 3-7% to cope with higher input costs.
Good Glamm Group is selling some of its brands, including Organic Harvest and Sirona, as financial pressures mount. The company’s rapid expansion has led to cash flow issues, and buyers like Mamaearth and Nykaa are showing interest in buying these brands.
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