Easier crude create buffer against dipping currency

The sliding value of rupee has so far created a marginal impact on the cost of buying crude,the largest item in Indias import basket in value terms

The sliding value of rupee has so far created a marginal impact on the cost of buying crude,the largest item in Indias import basket in value terms. On Thursday while the price of crude per barrel rose by 31 rupees the continuing easing of oil prices in dollar terms in the international market is helping India.

The price of crude in the Indian basket went down to 101.14 per barrel on Thursday,quite a bit lower than the 101.42 prevailing on the previous trading day as per data published by the governments Petroleum Planning and Analysis Cell. Since June 1,the public sector oil marketing companies are losing daily about Rs 276 crore on the sale of diesel,kerosene and LPG. This is higher than daily under-recoveries of Rs 252 crore in the second half of May.

As a back of the envelope calculation every one rise in crude oil imports leads to a rise in domestic under-recoveries by Rs 8,000 crore.

The finance ministry however is confident this is a temporary situation. We are monitoring the situation, an official said.

Deutsche Bank also expects the rupee to bounce back against the dollar in the second half of 2013. We are not inclined to worry a great deal about the rupees near or medium term outlook. The major sources of drag to the currency in recent years 8211; high inflation and high current account deficit 8211; are dissipating rapidly,and will help support the currency, it said in a note.

But the weak rupee is expected to help export-oriented sectors like IT.

Most large exporters hedge against the Rupee so to that extent they are not impacted much by currency volatility. But there is an import content in most exports that is not hedged. A falling rupee makes these expensive. In the case of textiles,the import content is about 15-20 per cent, said Vijay Mathur,acting secretary general,Apparel Export Promotion Council.

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IT stocks led by TCS gained 3.5 per cent on the Bombay Stock Exchange BSE even though the Sensex lost 0.46 per cent on Friday.

The BSE IT Index settled for the day 1.59 per cent higher at 6,138.27 and was the top gainer among the 13 sectoral indices.

But,for many corporates,a weak rupee is not a good sign as it tends to affect their dollar denominated liabilities. Companies with heavy ECB and FCCB exposure could register huge mark to market losses in the current scenario, said Jagannadham Thunuguntla,Equity Head,SMC Capitals.