The Hindu Business Line : Short-term hedging preferred by corporates: Study

Mumbai, Nov. 29 Short-term hedging, particularly those ranging from 12 months to within three years, are the most frequently used by corporates and there are hardly any takers for the long-term hedging contracts in India, said a survey report conducted by Ernst & Young.

Hedging horizon is generally less than three years, with most having a hedging horizon within 12 months and 33 per cent still resort to opportunistic hedging, said the report.

The company surveyed 34 leading Indian corporates with a combined market capitalisation of $304.65 billion.

Forex risks

“There is an urgent need for a demonstrable and clear relationship between hedges and underlying exposures to enhance transparency in forex operations. While businesses are still focussed on protecting accounting profit and loss, use of hedging as a tool to protect real business cash flows is rarely assessed,” said Mr Hemal Shah, Associate Director, Financial Risk Services, Ernst & Young.

Talking about the corporate governance practices in treasury portfolio, Mr Shah said that more than 91 per cent of the respondents to the survey do not measure their overall treasury performance and only one-third of corporates had Board representation in treasury risk management committee.

The survey also pointed out that though the transaction volumes have increased manifold, automation to back treasury operations has not kept pace. Only three per cent of the respondents had implemented an integrated treasury system.

“As Indian organisations rapidly expand across geographies and the role of treasury comes to the forefront, benchmarking practices and defining performance standards will take increased precedence,” said Mr Farrokh Tarapore, Partner, Risk Advisory Services, Ernst & Young.

Investment in treasury systems would help treasuries enhance processing efficiency and leverage risk measurement and quantification tools, said the survey. There is a scope for use of treasury expertise in the area of strategic investment, the report concluded.

More Stories on : Forex | Derivatives Markets

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Airtel, Western Union offer mobile money transfer service

Rupee range-bound

Short-term hedging preferred by corporates: Study

HDFC 3-day property fair in Coimbatore opens today

New IRDA norms soon for health insurers

LIC health product may hit market in Dec

Guidelines on intermediate holding cos still awaited

Hexaware fallout: Cos to guard against risks

PSBs taking guard against falling dollar

IFC to assist AP in infrastructure development

Bond prices flat

Call rates at 7.75-7.85 %

K.V. Kamath is Forbes Asia Businessman of the year