The Hindu Business Line : Rupee impact: Exporters hedge receivables to cut losses

Banking sources said exporters were alarmed by the rupee's steep appreciation since the beginning of this fiscal year, propelled by inward capital account flows.

FEARS

Since the beginning of April this year, the rupee has appreciated by over 5 per cent.

In fact, there were fears that the capital flows would drive the rupee-dollar exchange rate above Rs 40. With exporters now resorting to hedging their receivables, the forward premia has dipped to 3 per cent from about 5 per cent during the beginning of this fiscal year.

In fact, during the week the frenzy of hedging had driven down the six-month forward premia to as low as 2.1 per cent.

Bankers said commodity exporters and software companies were among those who had resorted to hedging. Infosys and TCS have already increased their hedging limits.

TCS has increased the cover from $1.2 billion to $1.5 billion. Infosys has raised its forward cover from $450 million to $700 million.

Most exporters had left some of their positions open till early this year, hoping that firm oil prices would ensure that the exchange rates would remain stable.

However bankers said the reversal in sentiment followed the large inflows taking place into the country by way of external commercial borrowings, non-resident investment flows for subscription to the initial public offerings such as ICICI Bank.

More IPOs are in the pipeline by both public and private sector enterprises during the next few weeks, bankers said. This was likely to bring more pressure on the rupee.

Anticipating these flows, some oil companies and importers have now logged off the forward cover markets. In fact, some of them have opted to leave their positions open, anticipating the rupee to harden further.

In doing so, importers hope to gain from the rupee's appreciation. Among those resorting to leaving open position, included capital goods importers, bankers said. The inflows have triggered a liquidity build up due to sudden step in interventions by the foreign exchange markets by the Reserve Bank after weeks of restraint.

The interventions have pushed up foreign exchange reserve to $209.55 billion.

But the liquidity impact of this intervention was evident from the bids made at the liquidity adjustment facility auctions. At the two LAF auctions, the bids made amounted to Rs 69,000 crore.

The liquidity overhang has reinforced speculation of a potential intervention by the RBI, through the cash reserve ratio route for soaking up excess liquidity.

The expectations were one of the major factors driving up yields. Ten-year bond yields as a result hardened to 8.35 per cent up from last weekend's 8.16 per cent.

`Rise will dent IT industry margins'

Strengthening of the rupee will have an impact IT industry margins, said Infosys Technologies Chief Operating Officer and CEO-designate, Mr S. Gopalakrishnan, in Bangalore.

"The rupee appreciation will definitely dent the industry. The estimates depend on how much business happens, in which location and in what currency," Mr Gopalakrishnan told presspersons on the sidelines of the CII Innovation Summit.

"Every one percentage point appreciation will have an impact of between 30 and 40 basis points on the margin," he said.

The value of the rupee has risen by 9 per cent against the dollar since December 2006. Currency hedging, Mr Gopalakrishnan said was a short-term measure to offset the impact of the strengthening rupee.

In the longer term, companies need to look at their portfolio of services, the geographies in which they sell and the prices that they charge from customers to mitigate the impact, Mr Gopalakrishnan added.

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Rupee impact: Exporters hedge receivables to cut losses