MUMBAI: Overwhelmed by the plunging rupee, Corporate India is running out of options to mitigate the impact of wild swings of the rupee on their earnings as they desperately hope for an intervention by the central bank.
Firms with significant dollar exposure are bracing for earnings erosion as the local currency touched a record low of 53.40 on Tuesday against the greenback, even as foreign investors pulled out money from the economy where they fear growth is slowing down. Rupee has fallen by around 19% this year.
Mumbai-based conglomerate Larsen and Toubro(L&T), with interests in construction, engineering, information technology and financial services, said that it is high time the central bank intervened.
"We have seen rupee falling by 10 paise or even up to 50 paise, but not by a rupee or more in such a short span," said R Shankar Raman, chief financial officer (CFO) at L&T. "These are extraordinary times and the time is ripe for RBI to announce its existence."
Deepak Harlalka, CFO at electrical and engineering components manufacturer Raychem RPG, part of the Rs 16,000-crore RPG Group, said companies would do well to adopt a 100% hedging strategy for any foreign currency liability and leave foreign currency receivables open to take advantage of the falling rupee. However, he too remained unsure of the efficacy of general strategies in the current situation.
"There used to be a time when you could say with a fair amount of confidence that six months or one year down the line things would move in a particular direction, but not anymore," Harlalka said.
Infrastructure major GMR said that the volatility is so extreme that traditional ways of combating it are becoming meaningless, especially in the short term.
"It is like a natural calamity, like a tsunami," said A Subba Rao, group chief financial officer for the infrastructure major GMR Group.
"With the rupee sliding so fast and so sharply, there is only so much you can do. Depending on your foreign currency loan exposure you can hedge, but beyond a certain point it is not really practical." GMR, which has done landmark projects like the Delhi International Airport and the Hyderabad airport, has about $416 million in foreign currency loans, taken for the two airport projects.
"If the rupee does not come back to 48-49 levels against the dollar in the next six months or so, then we will see the impact in the form of higher project costs as we have some project loans in foreign currency," Rao said. Project costs could go up by as much as 1-2%, according to him.
Wind energy major Suzlon was unperturbed by the wild swings in rupee exchange rates. "We are an Indian multinational with a presence in 32 countries; currency fluctuations have a modest net impact on our business as a whole," an official spokesperson said.
Firms with significant dollar exposure are bracing for earnings erosion as the local currency touched a record low of 53.40 on Tuesday against the greenback, even as foreign investors pulled out money from the economy where they fear growth is slowing down. Rupee has fallen by around 19% this year.
Mumbai-based conglomerate Larsen and Toubro(L&T), with interests in construction, engineering, information technology and financial services, said that it is high time the central bank intervened.
"We have seen rupee falling by 10 paise or even up to 50 paise, but not by a rupee or more in such a short span," said R Shankar Raman, chief financial officer (CFO) at L&T. "These are extraordinary times and the time is ripe for RBI to announce its existence."
Deepak Harlalka, CFO at electrical and engineering components manufacturer Raychem RPG, part of the Rs 16,000-crore RPG Group, said companies would do well to adopt a 100% hedging strategy for any foreign currency liability and leave foreign currency receivables open to take advantage of the falling rupee. However, he too remained unsure of the efficacy of general strategies in the current situation.
"There used to be a time when you could say with a fair amount of confidence that six months or one year down the line things would move in a particular direction, but not anymore," Harlalka said.
Infrastructure major GMR said that the volatility is so extreme that traditional ways of combating it are becoming meaningless, especially in the short term.
"It is like a natural calamity, like a tsunami," said A Subba Rao, group chief financial officer for the infrastructure major GMR Group.
"With the rupee sliding so fast and so sharply, there is only so much you can do. Depending on your foreign currency loan exposure you can hedge, but beyond a certain point it is not really practical." GMR, which has done landmark projects like the Delhi International Airport and the Hyderabad airport, has about $416 million in foreign currency loans, taken for the two airport projects.
"If the rupee does not come back to 48-49 levels against the dollar in the next six months or so, then we will see the impact in the form of higher project costs as we have some project loans in foreign currency," Rao said. Project costs could go up by as much as 1-2%, according to him.
Wind energy major Suzlon was unperturbed by the wild swings in rupee exchange rates. "We are an Indian multinational with a presence in 32 countries; currency fluctuations have a modest net impact on our business as a whole," an official spokesperson said.
"Sure, it is a tough act as they (RBI) also have to worry about inflation and liquidity, but unless they step in and give confidence, the market will continue to move in the wrong direction," Raman added. "For corporations, it is beginning to sink in that in the near term, they can only grin and bear given the extreme nature of volatility."
(Source- http://economictimes.indiatimes.com)
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