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Indian importers are running for foreign exchange cover as the rupee continues to slide.
They are rushing to buy products that can help them lock their exposure to a particular level of the rupee and insulate them from any further fall in the local currency.
Even segments where there are imports for export production, there is a rethink on the hedging strategy, say bankers and forex market experts.
Many importers who remained un-hedged, betting that the rupee would not see volatile movements, have been caught off-guard. With the currency tumbling by over 10 per cent since March, many of them are now knocking the doors of bankers and forex advisors seeking a hedging strategy.
SMEs bear the brunt
While large corporates have the luxury of in-house treasury teams to cope with the situation, the largely unorganised small and medium enterprises (SMEs) are bearing the brunt.
“On the one hand, the cover ratio for imports has gone up. On the other, it is coming down for exports,” said Mr Abhishek Goenka, Founder and CEO, India Forex Advisors, referring to the current rupee situation.
The cover ratio broadly refers to the level of exposure that is hedged.
In other words, importers are leaving lesser amount unhedged, while exporters are increasingly resorting to lower hedging. While importers want to protect their downside, exporters want to take advantage of a further slide in rupee.
There is a surge in queries from import-intensive segments, such as edible oil and chemicals, where importers have to pay huge buyers' credit.
“Even companies with external commercial borrowing loans are coming forward to hedge now,” Mr Goenka added.
The recent slide in rupee could also prompt importers to seek a review of their earlier fixed exposure limits from banks.
“Banks would be ready to enhance their credit limits, which is always provided in rupees, only after assessing the creditworthiness of the borrower,” said Mr V. Kannan, Executive Director, Oriental Bank of Commerce (OBC). The same story may hold good for export credit also.
Mr Kannan said that OBC was advising its SME clients to have a hedging policy that should be reviewed on a dynamic basis from, say, a month-to-month or short-term period. Most SMEs don't have a hedging policy.
Companies such as Insecticide (India) Ltd (IIL), which rely on import for 30 per cent of their raw material, have revised their hedging strategy.
“We have been revising our hedges every month now for the past three months,” said Mr Rajesh Aggarwal, Managing Director, IIL.
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