Rupee slide puts consumer durable firms on tenterhooks

Price hike of 2-3 per cent in the offing

The downward slide of the rupee is putting pressure on consumer durable/electronics companies to increase product prices. This is because the import component in white and brown goods is typically high - as much as 50-75 per cent. Any fluctuation in rupee-dollar levels has a straight impact on product prices.

The rupee breached the 67-mark to a dollar last week and has stayed there since then. Companies, when contacted, said they expected the rupee to touch the 68-mark in the near term. "There have been no positive indicators in the past few weeks. I won't be surprised if the rupee breaches the 68-mark, which means we will have to increase prices," said C M Singh, chief operating officer at Videocon Industries.

Trade sources say South Korean majors LG and Samsung along with Videocon have given them indications to expect a price hike of 2-3 per cent next month. The depreciation in the rupee has a 1.5 per cent impact on prices, according to experts tracking the market. As the price hike comes barely a month into the new year, companies say it could impact sales. "While firms will wait till the Budget is announced before they increase prices next month, my sense is it will hit sales. The AC season kicks off in the summer season. So do refrigerators. Plus, you have the World T20 tournament happening in March and the annual IPL (Indian Premier League) in April. This means TV sales could be impacted, if firms are forced to increase prices," said Y V Verma, a consumer durables expert, who was earlier with LG and Onida.

The rupee volatility has been triggered by sustained weakness in the Chinese economy and a spate of negative news that has come from one of the world's most crucial markets. The stock markets were the first to react to this at the start of this year followed by the currency markets.

Most companies were operating at levels of 65-66 to a dollar implying anything below that is a red flag.

Kamal Nandi, business head and executive vice-president at Godrej Appliances, however, says companies might have a respite if commodity prices continue to be on the lower side. "What we have seen is, there has been a balancing effect because you have commodity prices falling, which is offsetting the rupee slide for now. How long this cushion is available is anybody's guess. But companies will evaluate these factors before taking a price hike," he says.

Most commodities and crude-linked derivatives are down due to weakness in the global economy.