The Hindu Business Line : Wild rupee swings pose hedging challenges

Hyderabad, Aug. 4With the rupee fluctuating between Rs 38 and Rs 43 to a dollar in the past three quarters, technology firms, particularly small ones, have found it tough to handle dollar inflows.

Most of them have reported marked to market losses as they do not have appropriate hedging mechanisms. Top firms, too, have registered forex losses for Q1.

Satyam reported losses of Rs 36 crore, TCS posted losses of Rs 76 crore and HCL Technologies took a big hit of Rs 300 crore during the recent quarter.

Mr Harit Shah of Angel Broking told Business Line, “Hedging is all about taking a call on forex exposure and managing it well. However, with the kind of fluctuation seen in the last three quarters, most big firms have managed it well. Some could have done it better, as the issue is company-specific and depends upon their overall exposure to dollar.”

The problem is with cash flow hedging, which could result in losses, so is the case where more amount is hedged, he said.

The inelastic nature of smaller companies makes it a lot difficult for them to take the right call. By the time they adjust to changes, the damage is done, Mr Shah added.

Companies that have had problems include Hexaware and Prithvi, which suffered forex losses of about Rs 18 crore. Mindtree and Infotech have also been hit.

The Managing Director of Prithvi, Mr V. Satish Kumar, recently told Business Line that some changes in accounting approach last quarter and marked to market losses adversely impacted the company.

The way out of such huge fluctuation is to get the right hedge, which can be tricky.

Another way out is to focus on improving productivity, which will help profitability, the Chief Executive Officer of Intelligroup, Mr. Vikram Gulati, said.

The Chief Financial Officer of Satyam, Mr V. Srinivas, said, “The company sticks to a policy of hedging about 50 per cent of dollar inflows and this has held us in good stead in the past.”