Why Indian ₹ is falling down against dollar.

Let’s understand why Indian Rupee is falling down.

₹ is not falling due to one reason. it is falling due to three reasons and all three reasons are happened at the same time.

1. we all know that foreign investors are running from Indian market. investors left India with more than 17 billion dollars. This is the biggest outflow after the covid 19 Crash.

2. the second reason is India's trade deficit is increasing. Less dollars are flowing into India and more dollars are flowing out.

Let's understand with a simple example: - If India is importing $1000 and exporting $700, then $300 is going away from us. This is also increasing the pressure on the Indian Rupee and the Rupee is falling.

https://thewire.in/trade/indias-exports-fall-by-11-8-even-as-trade-deficit-widens-textile-sector-badly-hit-by-us-tariffs

3. The third reason is RBI decided not to defend the Rupee. And accept the weaker Rupee. RBI have accepted the IMF's reclassification of the crawling arrangement. RBI believes that defending the Rupee right now will be very expensive. All the reserves will be exhausted, so it would rather have it adjust naturally than crash suddenly.

https://bfsi.economictimes.indiatimes.com/news/policy/indias-central-bank-allows-rupee-to-weaken-amid-dwindling-dollar-inflows/125760267

Now try to understand the timeline

From May-June-July 2025, FIIs are going to left the market, trade deficit is in negative. RBI is like ok we cannot fight in this situation as all three are happening at the same time.

Let's understand whether the RBI did the right thing or wrong.

They had two options.

Option 1: Burn $40 billion and maintain the rupee at $83. But if the FIIs leaving will be a hit again, then even $40 billion will be lost, and the rupee will not be able to be maintained at $83.

Option 2: The RBI will not intervene aggressively. Let the falling rupee benefit at least from our exports.

Now, we actually choose the second option, and whether this option is correct or not will depend on the future. If the FIIs return, it will be the right decision. We will preserve the capital. But if they don't return, we will have to struggle.

How the fall of the Indian Rupee is good for India.

Let's understand how.

We need to understand economics, but we need to understand economics with geopolitics and diplomatic strategy.

The fall of the Rupee is a blessing in disguise. but why did the Rupee fall so much?

India is a country that is currently facing the highest tariffs ever imposed by the USA, yet it is still outperforming many countries in terms of economic growth. So, when America imposed its highest tariffs on India, it meant that Indian goods were artificially made more expensive for consumers in the US by levying taxes. Naturally, US consumers wouldn't buy Indian goods, meaning Indian exporters would earn fewer dollars, resulting in a shortage of dollars in India. When something is scarce, its value increases, and that's why the value of the dollar is rising compared to the Rupee, and the value of the Rupee is falling.

But what is the opportunity in this crisis?

The USA consistently fails to be a trustworthy and reliable partner. Therefore, it is important for our exporters to find new foreign markets. Because when the rupee depreciates, our goods become cheaper for foreign markets. And who doesn't like cheaper goods? So, this decreased rupee value will provide an advantage in entering new foreign markets where they can break established monopolies with their lower prices and carve out a niche for themselves. This will prevent Indian businessmen from being dependent on a few countries for doing business.

And in the current volatile geopolitical scenario, diversification of the market is the only solution for the economy to remain robust.

Yes, there might be some difficulties in the short term, such as inflation, but this is a necessary evil for long-term benefits.

Why Is the Rupee Actually Falling?

Every few months we hear this line again — “Rupee hits new low.”

And instantly people start panicking.

But currency doesn’t fall randomly. It’s not emotional. It reacts to money flow. And right now, three things are happening together.

That’s why the pressure feels bigger.

Foreign Money Is Moving Out

Let’s start with something simple.

When foreign investors invest in India, they bring dollars. Those dollars get converted into rupees. That creates demand for rupees, and the currency stays strong.

Now imagine the reverse.

Investors sell Indian stocks, take their money back, convert rupees into dollars, and leave. Suddenly, everyone wants dollars. Demand for dollars goes up. Rupees are sold in large quantities.

When supply of rupees increases and demand for dollars rises, what happens?

The rupee weakens. It’s basic demand and supply.

This kind of outflow doesn’t mean India is collapsing. It just means global investors are reallocating money — maybe US interest rates are higher, maybe global risk appetite is lower. But the impact on currency is immediate.

We Are Spending More Dollars Than We Are Earning

The second issue is trade.

India imports a lot — especially oil. Oil payments are made in dollars. Electronics, machinery, industrial inputs — again, mostly paid in dollars.

If we import $1000 worth of goods but export only $700, that extra $300 has to be arranged somehow. That means more demand for dollars in the market.

When this gap becomes larger, pressure builds.

It’s like a household earning ₹50,000 but spending ₹70,000. That ₹20,000 gap has to come from somewhere. At the national level, that “somewhere” is foreign exchange reserves or external borrowing.

And when that gap widens consistently, the currency feels it.

RBI Is Choosing Its Battles

Now comes the interesting part.

The RBI can defend the rupee. It has dollar reserves. It can sell dollars in the market and reduce volatility.

But here’s the question — for how long?

If global pressures continue and outflows don’t stop, defending a fixed level becomes expensive. You can’t keep burning reserves endlessly.

So sometimes, policymakers decide it’s better to let the rupee adjust slowly rather than fight the tide.

It’s not surrender. It’s strategy.

A gradual adjustment is always safer than a sudden crash after reserves are exhausted.

Is This Entirely Bad?

Short term? It hurts.

Imports become expensive. Fuel prices can rise. Inflation can creep up. Businesses that depend on imported raw materials feel pressure.

But there’s another side most people ignore.

When the rupee weakens, Indian exports become cheaper globally. That gives exporters breathing space. It improves competitiveness.

If used wisely, this phase can push businesses to explore new markets instead of depending heavily on a few countries.

Currency weakness is painful, but it can also rebalance things.

At the end of the day, exchange rates move because money moves. Capital flows, trade flows, policy choices — they all interact.

The rupee falling is not a one-line story of “good” or “bad.” It’s part of a larger economic adjustment.

What really matters is whether growth remains stable, inflation stays manageable, and investor confidence eventually returns.

Currencies fluctuate. Strong economies adapt.

Source : ET, thewire.in, Google

For any query regarding the post or if you want to learn any topic you can write me on

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rohitjainroyalr@gmail.com

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Constant Currency Mechanism

 

One of the most widely used tools in financial analysis today, especially for global companies, is the constant currency approach. In the current economic environment—where exchange rates fluctuate frequently due to inflation differences, interest rate movements, geopolitical tensions, and global capital flows—this concept has become even more relevant.

Let us understand this concept properly and in a practical way.

Problem: If a company has significant share of its revenue and expenses from foreign currency, how to determine its actual % change YoY or any period?

Solution: Use constant currency mechanism

What is constant currency?

A method where conversion rate of a foreign currency is made constant.

Let us understand this by an

example!

Year 1: S company earned €10,000 revenue. The average conversion rate for the year was ₹/€ 80.

Now, Year 2: S company earned the same €10,000 revenue, but the conversion rate for year was ₹/€ 84.

Now, Revenue (in INR) = 840,000 [ €10000*₹84].

If we compare Year 1 vs Year 2 in absolute terms;

Revenue growth= +5% YoY. (10000*(84-80)*100//800000)

But, the revenue growth achieved is the function of entity's operational efficiency? Definitely not!

It is because of currency fluctuations!

To resolve this problem, most of the analysts and company executives use constant currency approach.
Considering the above example, if we use constant currency approach, the result will be as under:

Year 1- Revenue= ₹8,00,000.

Year 2- Revenue= ₹8,00,000. [ €10,000* ₹80]

Wonder how? In year 2 we use year 1 conversion rate to determine the actual growth of revenue over year 1.

If we notice, using constant currency approach mitigates the effect of forex fluctuations, thereby facilitating effective comparison period over period.

Usually, constant currency approach figures are not available in the financial statements of the entity!

They are usually available in:

1. Management commentary

2. Concalls

3. Investor presentations

4. Press releases etc.

This mechanism is highly evident in IT industry as the significant portion of their revenue is sourced from foreign countries!

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Let’s learn more about constant currency

If you regularly follow company results, especially of IT or multinational companies, you must have noticed one line that appears almost every quarter:

“Revenue grew 14% year-on-year. In constant currency terms, growth was 9%.”

At first glance, this sounds technical. But in reality, it solves a very practical problem in financial analysis.

In today’s world, businesses don’t operate within one country. An Indian company may earn in dollars. A European company may sell in Asia. A US company may manufacture in Vietnam and sell in India. Because of this, exchange rates constantly affect financial numbers.

And here is the problem — sometimes growth in revenue has nothing to do with better business performance. It may simply be because the currency moved.

Let’s understand this calmly and logically.

Imagine a company earns €10,000 in Year 1. The exchange rate that year is ₹80 per euro. So when the company converts its earnings into Indian rupees, it reports ₹8,00,000.

Now comes Year 2. The company again earns €10,000. Nothing changed in terms of sales. But this time the exchange rate is ₹84 per euro. So the revenue becomes ₹8,40,000.

If someone just looks at the rupee numbers, they will say — “Wow, revenue grew by 5%!”

But did the business actually grow?

No.

The company sold exactly the same amount. The only thing that changed was the exchange rate.

This is where constant currency comes into the picture.

Constant currency simply means removing the effect of exchange rate changes to understand real operational performance.

In our example, if we use the Year 1 exchange rate of ₹80 to calculate Year 2 revenue, the number remains ₹8,00,000. Now we see the truth — there is zero growth.

This approach gives clarity. It separates operational growth from currency impact.

And this is extremely important in the current economic environment.

Over the past few years, exchange rates have been highly unstable. Central banks have been increasing interest rates. Inflation has been different in every country. The US Dollar has strengthened and weakened at different times. Emerging market currencies have seen sharp movements.

Because of this, companies with foreign exposure can show fluctuating revenue numbers even if their business performance is stable.

If analysts ignore currency impact, they may misjudge a company’s performance.

Now let’s look at the opposite situation.

Suppose in Year 1 the company earns €10,000 at ₹80 = ₹8,00,000.

In Year 2, the company actually improves and earns €11,000. That’s real growth of 10%. But the exchange rate falls to ₹75.

Now revenue in rupees becomes ₹8,25,000.

When compared to ₹8,00,000, growth appears to be only around 3%.

Here the business performed well, but currency reduced the reported growth.

Without constant currency analysis, investors might wrongly assume weak performance.

So constant currency works in both directions:

·        It prevents overestimation of growth when currency is favourable.

·        It prevents underestimation when currency is unfavourable.

This is why it is widely used, especially in industries like IT, pharmaceuticals, and global consumer businesses.

Indian IT companies, for example, earn a large portion of revenue from the US and Europe. When the rupee weakens, their reported revenue automatically increases. That doesn’t always mean demand increased. Sometimes it is just currency support.

That is why management teams always highlight constant currency growth in earnings calls and investor presentations.

It helps investors understand the real momentum of the business.

However, one must also understand that constant currency is only an analytical adjustment. It does not change the actual cash flows of the company.

If the rupee weakens, the company really does receive more rupees when converting dollars. That is real money. But for performance comparison purposes, analysts want to know whether the increase happened because of business improvement or currency movement.

There are also some limitations. Constant currency numbers are usually not audited. They are presented by management. Different companies may use slightly different base exchange rates. So while useful, they should not be viewed in isolation.

In today’s global economy, currency volatility is not temporary — it is a permanent feature. With geopolitical tensions, shifting trade policies, and interest rate cycles, exchange rates will continue to move unpredictably.

That makes constant currency analysis even more relevant today than it was a decade ago.

Whenever you evaluate a company with international exposure, do not just look at reported revenue growth. Always ask:

How much of this growth is real business growth?

How much is because of currency?

If reported growth is 15% but constant currency growth is 8%, then 7% came from exchange rate movement.

If reported growth is 5% but constant currency growth is 12%, then currency worked against the company.

This simple adjustment helps you see through the noise.

Finance is not just about reading numbers. It is about understanding what is driving those numbers.

Constant currency helps remove one major distortion — exchange rate fluctuation — so that we can focus on the real story of the business.

And in today’s interconnected world, that clarity is not optional. It is essential.

If you want to analyse companies properly, especially exporters or multinational firms, always keep this tool in your analytical toolkit. It may look like a small adjustment, but it makes a big difference in understanding reality.

For any query regarding the post or if you want to learn any topic you can write me on

 

rohitjain8jan@gmail.com
rohitjainroyalr@gmail.com 
Website : - https://rohitjain.royalrichie.com
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Understand O2C, P2P & R2R

 

Understanding O2C, P2P & R2R – How a Company

Actually Runs

Whenever someone says “corporate finance” or “company operations,” it sounds complicated. But honestly, every business — big or small — runs on just three core cycles.

O2C.
P2P.
R2R.

That’s it.

If you understand these three properly, you will understand how any company functions in real life.

Let’s talk about them in simple language.

O2C – Order to Cash

O2C simply means the journey from getting an order to receiving the money.

Think about a normal shop.

A customer walks in and says, “I want this product.”
You check availability.
You pack it.
You give the bill.
Customer pays.

Done.

That is O2C.

Now in a company, the same thing happens but in a structured way.

First, the customer places an order — maybe online, maybe through a sales executive.

Then the order is entered into the system. Details like product, quantity, price, delivery date are recorded.

After that, the warehouse prepares the goods. The product is shipped. Delivery is confirmed.

Then an invoice is raised. The invoice clearly mentions the amount, taxes, and payment terms (like 30 days credit).

The customer pays — maybe through bank transfer, cheque, UPI, or card.

Finally, the accounts team records the payment and matches it with the correct invoice.

Once payment is properly applied in the system, the O2C cycle is complete.

If this cycle runs smoothly, cash keeps coming in on time. If there are delays in billing or collection, the company faces cash flow issues.

That’s why O2C is very important.

P2P – Procure to Pay

Now let’s look at the other side.

No company can survive only by selling. It also has to buy things.

That buying and paying process is called P2P.

Simple example again.

You run a mobile shop.
To sell phones, you first need to purchase them from a supplier.

You place an order.
Supplier delivers stock.
He sends invoice.
You verify it.
You make payment.

That is Procure to Pay.

In companies, this process has proper controls.

First, someone raises a purchase request.
After approval, a Purchase Order (PO) is issued to the supplier.

When goods are delivered, the company checks quantity and quality.

Then the supplier sends invoice.

Before making payment, accounts team does something called 3-way matching. They check:

What was ordered (PO)

What was received (Goods Receipt)

What is billed (Invoice)

If everything matches, payment is approved.

This step is very important. It avoids fraud, duplicate payments, and mistakes.

After payment is made and recorded, P2P cycle ends.

Strong P2P means better cost control and better supplier relationships.

R2R – Record to Report

Now comes the part where everything is summarised.

Throughout the month, sales happen (O2C). Purchases happen (P2P).

But someone has to calculate the final result.

Are we making profit?
Are expenses too high?
How much cash is left?

That entire process is Record to Report.

In R2R, all transactions are recorded properly through journal entries.

Bank statements are matched. Vendor and customer balances are reconciled.

Then a trial balance is prepared.

Adjustments like depreciation, accruals, prepaid expenses are passed.

Finally, financial statements are prepared:

Profit & Loss statement
Balance Sheet
Cash Flow statement

These reports are shared with management, investors, auditors, and government authorities for compliance and tax filing.

Once reporting is done, R2R cycle is complete.

How All Three Work Together

Now understand this clearly.

O2C brings revenue.
P2P creates expenses.
R2R tells you the final picture.

If O2C is weak, sales suffer.
If P2P is uncontrolled, costs increase.
If R2R is inaccurate, decisions go wrong.

All three are connected.

You cannot run a company by focusing on only one.

Why You Should Care

If you are planning to work in accounting, finance, SAP, ERP, audit, or any corporate role, you will definitely hear these three terms again and again.

Interviewers love asking about O2C, P2P, and R2R because they represent real operational understanding.

And if you are a business owner, understanding these cycles helps you control your company better.

Final Thought

At the end of the day, business is simple.

Money comes in.
Money goes out.
Everything is recorded.

That’s the system.

O2C manages incoming money.
P2P manages outgoing money.
R2R manages the reporting.

Once this becomes clear in your mind, corporate finance will never feel confusing again.

For any query regarding the post or if you want to learn any topic you can write me on

rohitjain8jan@gmail.com 

rohitjainroyalr@gmail.com 

Website : - https://rohitjain.royalrichie.com

Follow on Linked in - https://www.linkedin.com/in/rohit-jain-45298380/

        WhatsApp Channel:- https://whatsapp.com/channel/0029Vb5s32kEquiYjAofWP20

Thank you for reading & keep learning.