BOMBAY, MAY 29: Indian corporates are probably the worst hit by the rupee's 2.5 per cent fall in three weeks and the central bank's subsequent clamp down on speculation, but it is unlikely to lead to more hedging activities, bankers said.The rupee fell to its weakest level of 44.75 last week, jolting corporates out of a year of complacency and leaving several with large losses as they rushed to cover."Both importers and exporters are hurt, but I doubt they will move forward towards active hedging and prudent risk management practices," the Chief dealer at a private sector bank said on Monday."As was the case in February 1996, January 1998 and August 1998, this episode will soon be forgotten," he said.Despite the sharp and unexpected fall last week, expectations are the currency will be stable for some time now in line with the central bank's policy of snuffing out any volatility.Hedging costs at the moment are higher than potential losses from a weakening rupee, bankers said.Convertible only on the current account, the rupee slipped just two per cent against the dollar in the 12 months to April.An importer would have paid 44.20 for one-year dollars at the end of April 1999, whereas the rupee was quoted at 43.65 at the end of April 2000.Even at current levels of six-month hedge costs below three per cent, it does not seem worthwhile to hedge, analysts said.The confidence in the rupee will stay so long as the RBI's curbs on anticipatory hedges and import cancellations remain as well."It has not paid anyone to hedge. Along with volumes, the hedging component in the market has been shrinking," said Surjit Bhalla, director of Oxus Fund Management.Since 1998, corporates have had little flexibility in rupee trade, since anticipatory hedges, rebooking of import contracts and speculation is strictly prohibited. Last week's volatility led to even further curbs.The RBI imposed a 50 per cent surcharge on import finance to ensure import payments were staggered and pressure did not build up at the short end. Interest on overdue export receipts was also hiked sharply to 25 per cent.Analysts said the rupee's recent fall was warranted. It was overvalued compared with its real exchange rate and export competitiveness had slipped.Even after last week's slide, the rupee is just two per cent lower than its levels in January. That compares with a 4.8 per cent slide in the yen, 17.75 percent drop in the Indonesian rupiah, 5.88 per cent fall in the Philippine peso and a 4 per cent slide in the Thai baht.Industries like aluminium and diamonds with a high export content will gain, as will the software sector, analysts said.Software exports are projected at $3.9 billion in 1999/2000 and analysts said these companies would benefit since exports of services and products would now fetch a higher rate.Analysts said the slide should also provide protection to some commodity sectors like steel and petrochemical through higher landed prices.While corporates with overseas loans already drawn and unhedged will suffer, bankers said the rupee's slide was a windfall to those with loans tied and yet to be converted and others with overseas capital issues lined up.
