General thoughts Archives - Page 11 of 11

The rupee seems to have started appreciating against the dollar ( or to be correct – the dollar is depreciating against the rupee ).

There seems to be a consensus that dollar would continue to lose value for some time ( i have no way of figuring it out as i am clueless on how to evaluate currencies , but going by warren buffets 20 B bet , i would not bet against it )

So how do various companies get impacted ?

I would assume industries like paints / oil and gas / and others using petroluem as a key raw material to benefit substaintially and could see either margin expansion or atleast less pressure on margins (with toplines being robust due to strong domestic demand )

On the other hand export companies – esp IT companies would face a tough time. My own view is a long term appreciation should impact the labor arbitrage on which a lot of these companies thrive. The weaker ones could definitely go out of business ( Their costs are rupees and Topline in dollars )

Pharma / Auto companies have stronger IPR / R&D assets and those with higher value addition may be able to hold their pricing or atleast reduce the impact on margins ( auto components could actually hedge by importing steel and other raw material )

All in all , for the country it could mean lower supply side inflation. But expect an impact on the business model of various industries which thrive on the exchange rate

In may i analysed roughly that the market was offering an investor roughly 10:1 odds based on discounting of the risks ( some real risks and some imaginary ).

So a 10:1 odds meant a 10 % downside and 90 % upside which was kind of a good risk : reward scenario. A investor ‘COULD’ make good money if he/she invested at that time. The key work is ‘COULD’ . Finally investing is a probabilistic exercise and one can never be sure.

That is why i get uncomfortable when some ‘experts’ predict market level. Well if they are so confident then they should put all their money in the market at the time of the forecast, make the money and retire. The truth is no one can be sure. One can only look at the odds and invest when the odds favor. Which means higher the odds , lower the chances of losing. But still that does not mean one will not lose. even a 10:1 odds means one can lose 10% of the time.

so how has the thesis worked out . with market at 5950 , it is a gain of 20 % since then. Obviously the odds are poorer now and hence chance to lose higher (unless one is ready to invest with a longer holding period )

in the end it is all about odds . Also when you look at investing this way , you invest against the crowd which is difficult but in the end more profitable

CategoryGeneral thoughts

Impact of Rupee appreciation

Investing based on odds …Does it work ?

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