Why Re fall is no help to exporters

Thanks to the demonetisation of Rs 500 and Rs 1,000 rupee notes, the Indian rupee had fallen to Rs 68.52 from Rs 66.50 on November 9 or 3 per cent in less than a fortnight. However, the fall being so sudden, exporters have not benefited by it.

Most exporters have covered their receivables, effectively locking themselves to a particular level of exchange rate. For instance, exporters from Tirupur, Tamil Nadu, have said that the rupee would have to depreciate further in order that they benefit from it.

According to T B Kapali, a Chennai-based forex consultant, the current situation illustrates the need for using all market instruments. If exporters had bought a simple option instead of a forward cover, they could have cashed-in on this opportunity, Kapali told BusinessLine .

An option is an instrument that gives its buyer the right, but not the obligation, to buy or sell a commodity.

If you buy an option, the worst you can lose is the option premium, or the cost of the option, he said. It would have protected an exporter from any appreciation of the rupee, while giving him the benefits of depreciation — as in this case.

Vidyashankar Krishnan, Vice-Chairman and Managing Director, MM Forgings, an auto components manufacturer, disagrees.

“Options has never been an attractive proposition,” says Krishnan, because they are pricey. He says it is better to have a consistent policy of hedging. MM Forgings covers most of its receivable, leaving only a small portion open.

Krishnan says he finds ‘options’ also very illiquid — if you want to exit the option before the expiry date, you would not be able to do it.

Another exporter, Manickam Ramasami, Chairman and Managing Director of Loyal Textiles, also prefers straight hedging. “Options only help banks make money,” he observes.

On his part, Kapali believes that options are not expensive if one bought them in a “quiet market”. He feels that options can be sold any time as they are now allowed to be traded on the NSE platform.

Where the rupee headed?

Both Krishnan and Kapali said that the rupee would continue to be under pressure. “If foreign investors get the feeling that the overall economic policy is not in capable hands there will be a big rush of funds to get out of India,” says Kapali.

While Kapali reckons that the rupee could go as low as Rs 73 to a dollar, Krishnan feels that the RBI will not let such a free fall happen, and will intervene to stem the fall.

Madhusudhan Khemka, Managing Director, ReGen Powertech, a wind turbine manufacturer based in Chennai, feels that “there is no logic” behind the belief that the rupee would continue to fall against the US dollar. Khemka feels the rupee will start “climbing up” soon.

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