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C. Shivkumar

Glittering forever

Bangalore , Dec. 8

DIAMOND exporters in the country have begun invoicing in rupees, providing an indication on the future direction of the exchange rate equation in the months to come.

The trend of partial invoicing in rupees is a recent phenomenon, highly placed bankers said. However, most of the exporters, the bankers said, had not converted invoicing of all their receivables into rupees. Some part of the invoicing export receivables was still being retained in dollars. The bankers said wherever the invoicing was done in rupees, the exporters preferred leaving their positions open.

Any invoicing in Indian rupees, however, does not necessarily imply that the foreign importer makes the payments in Indian rupees.

Instead, the importer makes his payments in equivalent of rupees on the basis of the prevailing exchange rates.

Diamond exporters have traditionally preferred only invoicing in dollars or some more recently in euros. Till recently, diamond exporters have preferred to maximise their earnings, by taking advantage of high forward premiums, and have often postponed their receipts in anticipation of higher premiums.

Faced with appreciation, since the beginning of this financial year, bankers said, these exporters had been swapping their forward receipts for spot to minimise losses due to depreciation of the dollarBankers said the change to rupee invoicing was being done in anticipation of the rupee to strengthen further in the coming months on the back of swelling foreign exchange reserves. Reserves are anticipated to top $100 billion before the end of this fiscal.

Besides, the sources said, these exporters were also not in a position to take advantage of forward premiums. This was because forward premiums are below 0.20 per cent annum for up to 12 months. Bankers said diamond exporters shift to rupee-based invoicing follows foreign institutional investors taking forward cover for inward remittances into the market for investments to be made during the next financial year after the 2004-05 Budget.

But bankers said this kind of a situation was likely to create a shortage of dollars in the market. In fact, one of the major reasons for dollar going into discount against the rupee has been attributed to this shortage of dollars.

The discount is despite the fact that dollar interest rates are lower than rupee interest rates. So are the inflation rate differentials that still favour the dollar.

However, bankers said one of the key factors driving down premiums was the poor demand for dollars in the domestic markets.

Currently, few importers are prepared to take forward cover since most of them anticipate the rupee to strengthen in the coming months. They have preferred to leave their positions open hoping to access their respective foreign currency requirements at more favourable exchange rates.

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