With the Indian rupee hitting a record low against the US dollar on Monday,India Inc expressed its concerns and suggested that the Reserve Bank of India should intervene and take measures to provide confidence to the market. Expressing concern on the adverse impact it would have on the rising current account deficit,members of India Inc said that they would wait and watch to see the average quarter-on-quarter value of the rupee before commenting specifically on the impact their respective companies would have.
Some like Bharti Airtel and Jet Airways,which have large foreign debt,declined to comment,but company sources said that they have dollar denominated debt which is serviced through dollar earnings so the impact isnt big on them.
Though a weak rupee benefits exporters but beyond a point the benefits get capped as global buyers ask them for greater discounts. Global buyers are putting pressure for more and more discounts. They are asking for about 10-15%. They want to re-negotiate the deals. In the long-term,the volatility will add to the instability and speculation affecting the business confidence of exporters, said Ajay Sahai,director-general,Federation of Indian Export Organisations (FIEO).
We have a natural hedge to an extent as we earn around 30-35% in dollars. Around 40% of our expenditure is also in dollar currency so we would get impacted by that amount, said a senior Jet Airways executive.
The interest costs on dollar loans are still much cheaper than rupee denominated loans so despite the weak rupee there are no plans as of now to covert the loans into rupee denominated loans.
Commenting on the development,Baba Kalyani,chairman,Bharat Forge,the countrys largest auto ancillary company,said,Rupee has been weakening for a long time. As far as Bharat Forge is concerned,we hedge our foreign debt with exports,and therefore we dont have an issue.
The depreciating currency does not augur well for the economy as it will create inflationary pressure across the economy and have an impact on overall demand. Compounded with the fact is that GDP growth is slowing down which will impact the Indian economy significantly. For export-oriented units,it will be a positive as realisations will be higher and will benefit companies like Glenmark. The strengthening of the dollar has come as a surprise as one had not expected this kind of movement even a month ago, said Rajesh Desai,executive director,finance,Glenmark Pharmaceuticals.
A substantial amount of our income (two-third) is in the form of US dollars. So,definitely,a weakening rupee will be positive for us (exporters), says Uday Baldota,senior vice-president-finance & accounts at Sun Pharma. He,however,refused to comment further on the demand of US clients for discounts.
According to V Balakrishnan,board member,Infosys,the RBI should intervene and take certain measures to provide the confidence to market. said that tsharp depreciation is the result of RBIs inaction. There are certain other short-term measures which can be taken to stabilise the rupee. India should raise sovereign bonds to the tune of $20-30 billion. There has to be more reforms with regard to FDI as the country cannot depend on FII inflows alone,and steps should be taken to reduce the CAD. The depreciating rupee will prove beneficial to the IT industry but it has been caught off guard by the sharp fall. At Infosys,we always take short-term hedging strategies,and any impact would be realised only at the end of the quarter. The industry will also have to take into account the cross currency impact also as volatile global markets is not good for us, Balakrishnan added.
Rostow Ravanan,CFO,Mindtree,said: The actual impact will be known only after we take into account the quarter-on-quarter average value of the rupee against the US dollar. On a short-term basis,a depreciating rupee is good for the industry but in the long term,it is not good for the sector. A falling rupee will raise inflationary pressure and put pressure on companies to raise salaries of its employees. At Mindtree,we follow a constant hedging strategy with 50% of our exposure being on the roll.
Saumen Chakraborty,president and chief financial officer,Dr Reddys Laboratories,had recently said at an analyst call post the companys Q4 earnings that foreign currency cash flow hedges for the next 18 months in the form of derivatives and loans are approximately at $480 million,largely hedged around R56 to R59 to $1. In addition,we have balance sheet hedges of $350 million.