Rupee fall spooks India Inc boardrooms; CFOs worry RBI may hike rates again

The chief financial officers (CFOs) of India Inc are worried that the continuous fall in the value of the rupee against the dollar might stoke inflation, which in turn, might prompt the Reserve Bank of India (RBI) to increase interest rates. This would make the cost of funds expensive for corporate entities.

“In the past, the RBI had raised interest rates to check volatility. The sudden fall in the rupee’s value is alarming and the RBI will not hesitate to raise rates so as to stop the fall in value,” said Prabal Banerjee, president of the Bajaj group.

“The cost of funds for corporate entities in fiscal year ended March next year will go up substantially as interest rates are going up,” Banerjee said.  

To stem the fall in the currency’s value, the central banks across the world are raising interest rates, triggered by rising US interest rates and a rising dollar.

According to statistics collated by this newspaper, India’s top 50 listed companies in the NSE’s Nifty index paid Rs 778 billion in interest cost alone in the year ended March 2018. This was higher by 16.2 per cent when compared to 2016-17.

In FY17, the Nifty companies paid Rs 670 billion in interest cost. The rising cost of funds dents corporate profits, which, in turn, negatively impacts investments.

While the sudden fall in the rupee’s value is bad news for oil-importing companies, the exporters would be earning more from their dollar earnings in the coming months. The rupee is down by 9 per cent versus the dollar since January this year — giving extra earnings to exporters from India.

Some of the large companies said they were insulated.

The Chief Executive Officer and Managing Director of Tata Steel, T V Narendran, said there would be an impact on the company, as 70 per cent of its coal was imported. “As we are not importing iron ore from overseas but only coal, we will have limited impact due to the fall in the rupee,” said Narendran.

The Aditya Birla group said it had always taken forward cover for any currency volatility.

“It is our group policy not to keep any position unhedged. As far as Grasim is concerned, the falling rupee will not have any meaningful impact on us. Besides the company has exports, which work as a natural hedge against anything we import. We don’t get into a situation where we are caught in the falling rupee,” said Sushil Agarwal, the group CFO of the Aditya Birla group.

The rupee fall has also given well-rated companies an opportunity to raise funds abroad.

Many large companies such as Reliance Industries, Bharti Airtel, Tata Sons, Birla Carbon, public sector banks, and financial institutions are tapping international markets to take advantage of the cheaper funds.

“It makes sense to raise funds abroad as the cost of funds is lower by 3-4 per cent when compared to local rates. Besides when a company has to refinance its foreign loans, it makes sense to raise funds abroad,” said a CFO of a large corporate entity asking not to be named.

With inputs from Aditi Divekar