Corporates caught on wrong foot as rupee falls

“Given that capital flows have been weak,there could be further downward pressure on the rupee,” Rajwade says.

Indeed,the move by several corporates to switch to dollar borrowings given higher interest rates in the local market appears to have backfired because positions have been left uncovered.

Meanwhile,oil marketing companies have been particularly hit by the weak rupee in the September 2011 quarter,but losses at other companies too have been fairly high at Rs 591 crore for Ranbaxy,Rs 466 crore for Sterlite and Rs 485 crore for Shree Renuka Sugars,according to a report from Kotak Institutional Equities.

Says Ajay Seth,CFO Maruti Suzuki,“The falling rupee is a major cause for concern not just for Maruti but for the entire automobile industry. Our sense is that the fall would continue for another two months and we have hedged against short-term volatility.” Seth points out that the it’s been a bit of a double whammy for Maruti because the yen has been fairly volatile too.

Koushik Chatterjee,group chief financial officer,Tata Steel believes it’s the currency’s volatility that took corporates by surprise. “More than the absolute level,it’s the abrupt movements that have hurt. Had there had been a greater element of predictability,we would have taken measures to protect ourselves,” says Chatterjee.

Forex expert Jamal Mecklai believes the Reserve Bank of India may want to intervene in currency markets and in time,trim the cash reserve ratio (CRR) to free up some liquidity. However,as Mecklai points out,a fair amount of the recent weakness in the local currency has resulted from corporates not having covered their imports adequately and waited too long. Rajwade believes the central bank may not wish to step into the currency markets as it might not want to mop up too much liquidity from the market just yet.

In any case,companies will need to be far more watchful of their foreign currency exposures.

“The depreciation can affect the power sector adversely on fuel imports given that the cost of imported fuel is already a pain point for us. As far as Tata Power is concerned,our earnings are mainly in rupees and we have a very balanced exposure to foreign currency load,” said a spokesperson for the company.

While companies that need to pay up immediately have little choice but to buy their requirements of dollars at the current price,CFOs are hopeful the currency will stabilise. Prabal Banerjee,CFO,Adani Power believes the rupee could move back to levels of between 46 and 48 and not weaken as indicated by forward premiums. That’s,provided the sovereign debt crisis in the eurozone doesn’t worsen and the macro-environment at home doesn’t deteriorate. FE