Falling Yen Brings Cheer To Indian Corporates

Automobile and white goods majors including Maruti Udyog, Eicher-Mitsubishi, Videocon International, Sony and Hero Honda are among those who have benefited from the depreciation of the Japanese currency, yen, against the dollar.

Meanwhile, exporters who have not hedged their yen exports are facing a decline in earnings as well as a drop in their competitiveness in negotiations with Japanese trade partners. The yens steady depreciation against the dollar has been further compounded by the rupees rise against the greenback. This makes the rupee stronger against the yen, as the rupee-yen parity is a direct function of the rupee-dollar parity and the dollar-yen parity.

 

MUL imports a lot of components from Japan which will now come cheaper. LCV manufacturers like Mitsubishi, etc too import components from Japan. White goods producers like Sony, Akai, etc who sell their brands in the country will also benefit from the yen depreciation as will television manufacturers who import picture tubes from Japan. Further, the yen is not likely to rise in the short-term as the Japanese economy shows no signs of picking up. As one treasury official quipped, If they are unable to bring the economy on track with an interest rate of 0.7 per cent, how will they be able to recover fast? Analysts feel the Japanese economy wont pick up for the next six months. Exporters are losing out in two ways.

Those who have a direct yen exposure are seeing a steady depreciation in their rupee earnings. As regards corporates who have yen exposures via the dollar, they earn a lesser number of greenbacks after the conversion from yen to dollars and then dollars to rupees. The problem has arisen as exporters havent hedged their exposures. While the Indian forex market deals only in dollars, an importer or exporter can pay or receive the forward premium on the yen which can be arranged for by a bank. More importantly, the future competitiveness of Indian exports is at stake. The issue here is we would be losing as far as future competitiveness is concerned. We see the issue coming up in negotiations with Japanese buyers, said Kishore Shah convenor of the banking committee, Federation of Indian Exporters Organisation (Fieo). As per the latest figures available with Fieo, exports to Japan totalled Rs 5835.23 crore for April 1996 to January as against total exports of Rs 95875.98 crore. This works out to over 6 per cent.