How to trade when rupee falls: Long IT, Short Nifty, Bank Nifty

Riken Mehta

Follow me on Twitter @mehtariken 

Major asset classes like equities, currencies, commodities and bonds have seen huge volatility in the last six months on speculation over the pace of the US Fed’s bond purchases. Fears of a reduction in monetary stimulus have been putting pressure on the rupee and equities. However, some traders have used these sharp moves to their advantage. One such strategy has been to go long on IT stocks and short the Nifty and Bank Nifty stocks.

In past six months, every time the rupee has depreciated more than three percent, Nifty has lost two percent while Bank Nifty has shed close to four percent in trade. Barring one instance, CNX IT has given positive returns.

Instances when rupee has fallen more than 3% in short duration (3-8 days) Period: 11-May-2013-12 Nov-2013. Rupee data source: Bloomberg

June 5-11 (5 days) -3.45% -2.21% -3.71% 0.54%
Jun 17-26 (8 days) -5.58% -3.79% -7.18% 0.13%
Jul 29-Aug 2 (5 days) -3.47% -2.67% -4.47% 2.54%
Aug 14-22 (6 days) -5.60% -5.11% -7.18% -2.49%
Aug 26-28 (3 days) -8.63% -3.40% -7.50% 3.57%
Nov 5-12 (6 days) -3.20% -4.73% -8.88% 1.03%


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