Home-grown companies are preparing for life after the rupee falls to ₹80 versus the US greenback. Companies without a natural hedge like export earnings are rushing to take forward cover as they expect the rupee to fall gradually in the next year to as much as ₹86-87 to a dollar, a report by Business Standard stated.
In the short and medium term, BS noted that chief financial officers are advising companies to take the right kind of derivatives products depending on their exposure.
“The moment the US Federal Reserve rate hike gets over and discounted by the market, the equity market will start moving up in the US. Investors will move capital out of India to the US and the rupee will depreciate further,” Prabal Banerjee, an advisor to top-drawer companies on international finance told the market daily.
The report pointed out that a riveting fact is that nearly 44 percent of the funds raised by Indian corporates overseas are unhedged, according to the Reserve Bank of India’s (RBI’s) financial stability report of June this year, thereby increasing their liabilities as the rupee falls.
A lot of mid-sized and small companies do not take forward cover as their cost increases, it added. According to the RBI data, the total amount of outstanding external commercial borrowings (ECBs) is $180 billion. Of this, nearly $79 billion is unhedged.
For some of India’s oil and gas and metal companies like Reliance Industries and Vedanta, which earn a portion of their revenue in exports, they have a natural cover against a weakening rupee, the report further highlighted.
Analysts also noted that a sharp depreciation in the Indian currency this year is bad news for infrastructure sector companies, given they have been raising dollar-denominated debt in the past two years.