With the inflation rate shooting up, India Inc seems more or less convinced that long-term interest rates are set to go up. To hedge against the possible hike, corporates are resorting to interest rate derivatives, coupon swaps and other innovative debt instruments. Such instruments are also being used to bring down interest costs. A number of corporate finance heads who spoke to The Indian Express explained that a situation where the real rate of interest is negative (like in the present case) cannot last for long. Further, with a lot of arbitrage money coming in from abroad, there would be a pressure on the rupee. Hence, corporates are going in and planning for synthetic swaps like coupon swaps. Some companies who have gone in for coupon swaps to hedge and bring down interest costs include Jindal Stainless, Radico Khaitan, Saw Pipes and Dewan Housing Finance. Interest rate derivates too are being planned by companies. According to a Mumbai-based banker, ‘‘the corporate sector has been preparing for the reversal of the trend in the interest rate scenario. Many of the corporates have been shifting their loans using innovative methods. There is also focus on interest rate-credit hybrids, as growing numbers of banks roll out new products to meet client demand for yield’’. Indian companies, mostly in textile and auto component segments, with operations in Europe are looking at put and call option on their Euro exposure in order to get in and out of the domestic market for borrowing, depending on their scenario. Various types of coupon swaps
