Volatility in rupee movement, not appreciation, worries exporters

Exporters are no longer concerned about the appreciating rupee, as their treasuries are actively hedging receivables; extreme volatility in the rupee is what worries them.

“A higher rupee will curtail inflation and bring down cost levels. So, it is good in the long run,” said Sujit Sirkar, who, as chief financial officer at iGate, ensures his company’s earnings from software exports to the US aren’t hit by the currency’s appreciation.

In June, the rupee had fallen to an all-time low of Rs 57.13 against the dollar. On Friday, Arvind Mayaram, secretary in the Department of Economic Affairs, said the rupee could touch the 50-mark against the dollar in four months, owing to strong inflow of foreign currency. High inflows into stock markets and foreign direct investment are also expected to aid the rupee’s rise. And, the US Federal Reserve’s recent announcement of a third round of quantitative easing, coupled with the rise in the euro after Spain announced tough austerity measures, is likely to provide support to the rupee.

“IT (information technology) exporters usually hedge for two to four quarters of inflow, so the impact would not be much,” said Dipesh N Mehta, analyst at SBI Capital Markets. He estimates if the receivables aren’t hedged, every one per cent appreciation of the rupee against the dollar would lead to a negative margin impact of 30-50 basis points.

“Now, treasuries at all companies are very active,” said Mitesh Shah, vice-president (finance) at textile exporter Mandhana Industries. The company exports garments to brands such as Armani, French Connection and Pepe. “Fifty per cent of our company’s exports for this financial year are hedged for receivables, at the rupee’s value of 56 against the dollar,” he said.

However, the textile industry still faces a risk, in terms of pricing competitiveness vis a vis other garment-exporting countries, such as Bangladesh and Vietnam, said a senior executive at a leading garment exporter.

“Strengthening of the rupee does not impact exports as projected; importers are well aware of exchange rates and orders are booked according to prevailing prices,” said Rajesh Mehta, executive chairman Rajesh Exports, India’s largest maker and exporter of gold jewellery, with sales of about $4.7 billion. However, he adds, “But when there is high volatility, the importer is not ready to fix prices on the depreciated value and waits or negotiates for an appreciated value of the rupee to book orders. That is when it hurts.”