Currency volatility adding to corporate treasury dilemma: KPMG

Active management of the risk of fluctuations in the currency market is a necessity and vital to maintaining business profitability, says Kuntal Sur, Director, KPMG India

The rupee that has depreciated by over 10% in the last one month and is witnessing high volatility is adding to corporate treasury dilemma and especially for companies dealing with commodities and IT/ITEs sectors, says a KPMG report.

According to KPMG India survey titled 'Managing currency and commodity risks' that was released today, a stronger organisational risk culture and greater support from the management are perceived to be the major areas of improvement for better risk management.

The dilemma of how much to hedge and for what tenor confronts most treasurers, the survey that covered treasury heads and chief financial officers said.

Companies do not want to lose out to competition in future because their portfolios are aggressively hedged nor do they want to miss out on the current opportunity of locking in profits on their exposures, the report said, adding this is particularly true of companies dealing with commodities and those in the IT/ITEs sectors.

"Active management of the risk of fluctuations in the currency market is no longer an option, it is a necessity and vital to maintaining business profitability," Kuntal Sur, Director, Financial Risk Management, KPMG in India said.

Sur further added that the time has come to go beyond 'crystal ball' gazing, as the companies that relied on market expert views; left with red on their financial statements.

With currencies moving over 10% in a month you do not need a crystal ball; you need an independent risk management process, Sur said.

Around 87% of the respondents said that a stronger organisational risk culture would help in improving risk management in the company. In addition, a need for better communication between the treasury and the business units was also felt by a majority of the respondents.

The survey further noted that while the urge to foresee the future and beat the market is high, more and more companies are realising that it is better to be prudent and hedge exposures in a structured manner, than to rely on market gurus and their ever changing forecasts.

The rupee last week sank to an all-time low of 60.76 against dollar on heavy capital outflows and month-end dollar demand from importers.