Even though rupee eased to its lowest in almost a week today, but it is still up 7% making it the best performing currency against the dollar in 2007. Last week it touched a nine-year high. Rupee appreciation will be negative for overall earnings, says a Merrill Lynch research report.

According to the report, the companies that will be impacted negatively by the rupee appreciating include global commodity stocks like Reliance, Hindalco, Tata Steel and software companies like Satyam,Infy etc. And the gainers will be Jet Airways, Reliance Communications and auto companies like Tata Motors, Maruti, Hero Honda etc.

Global commodity companies price their products off landed costs. With a decrease in landed costs, profits for these companies will be hit. Reliance's 70% of revenues come from exports which again would be hit by the rising rupee and this would further hit their profitability.

Software companies are also going to lose on the back of the appreciating rupee as their exports are priced in foreign currency.

V Balakrishnan, CFO, Infosys, said that in the fourth quarter they have seen an impact of 100 bps on their operating margins because of the movement of the rupee. "but that was more than offset by the increased non-operating income that we have seen because the effective yield in the last quarter has increased from 7% to 10%."

He said that in this quarter the rupee appreciated by around 1.8% and for every 1% change in the rupee dollar rate the company has have an impact of 50 bps.

The management of MindTree talking about their fourth quarter result said that rupee appreciation will be the key hurdle for their future perfomance. Patni Computers has seen rupee appreciation impacting their margins by 0.3% in Q4. But brokerage firm, Merrill Lynch, still expects strong volume growth to lead to steady earnings increase.

On the other hand, sectors that are likely to gain from the currency gaining are auto, engineering and aviation companies.

The biggest gainers in the auto sector are Hero Honda, Maruti, Tata Motors and Ashok Leyland as the imported price of their raw materials will cost less.

Engineering companies like Suzlon also gain on raw material cost savings. Jet is the other gainer on its aviation fuel costs, says the report.

Deccan Aviation management said that rupee appreciation is having a favorable impact on the lease side.

Jet Airways's international revenues will get hurt but there will be more savings on fuel, lease rentals, interest and depreciation.

According to the report, companies with foreign currency loans or FCCBs like Reliance Communications, Bharat Forge, Sun Pharma and Ranbaxy are also likely to gain due to rupee appreciation.

Allianz Global feels that a sharp rupee appreciation will have a drag effect particularly on banks.