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Journalism of Courage
MUMBAI, Nov 18: Corporate treasurers say the political uncertainty at the centre is a key contributing factor to the sudden fall of the rupee. While exporters hope the currency will fall further in the next few days, panic-stricken importers and corporates with large exposures to external debt are rushing for cover.
quot;If there is one thing I am certain about, it is political uncertainty 8212; the major reason behind the rupee8217;s current depreciation,quot; Indian Rayon president D D Rathi said. Gujarat Ambuja treasurer Anil Singhvi said political uncertainty is one factor that has led to the fall in the rupee.
The panic in the market has led to corporates covering their positions, according to Lamp;T chief treasurer L Krishna Kumar. Political uncertainty, he concurs, is the culprit for the fall, but is not the only factor weighing on the markets.
quot;Importers will always lose in this sort of a panic, since they will go in for cover even at a high cost,quot; Rathi said. According to him, corporates will suffer if they leave their forex exposures uncovered. quot;We hedge the risk and keep on covering. We don8217;t mind parting with the premium, and we try to compensate for this by lower interest rates. Naturally, where the rupee is stable, companies that go in for cover do suffer 8212; but this is worth the risk,quot; he said.
The best strategy for a corporate today, according to Rathi, is to go in for exposure to a basket of currencies. Singhvi said RBI8217;s reserves can well defend the rupee in a thin market. The rupee is expected to stabilise at around 36.75. According to Krishna Kumar, the rupee will continue to be where the RBI wants it; it has enough reserves to ensure that it stabilises.According to Rathi, the depreciation 8212; a technical correction 8212; was long overdue. quot;I do not think the RBI is defending the rupee. The rupee can be expected to depreciate between 5-6 per cent every year. If the six-month forward premium is taken into account, the rupee is likely to reach around 38.50 by March,quot; he said.
In Krishna Kumar8217;s opinion, the contagion effect of the south Asian currency turmoil and the wave of FIIs8217; profit-booking have contributed to the fall of rupee.
Singhvi, however, felt that the FII demand for dollars has not really been large. quot;The total outgo over the past fortnight has been around 58 million. It does not warrrant a 2 per cent depreciation in the rupee over a short period of time. The macro-economic factors have not changed during this period. In fact, it is panic that is making some corporates cover their positions,quot; Singhvi said.
