Ex­porters Ex­pect Fur­ther Rise in Re, Cover Po­si­tions

STRONGER RU­PEE cou­pled with fall­ing for­wards premium yield less value

The Economic Times - - Finance & Commodities - Times­group.com

Saikat.Das1@

Mumbai: In­dian ex­porters are rush­ing to buy ef­fec­tive hedges for their dol­lar re­ceiv­ables, an­tic­i­pat­ing that the Mint Street’s pol­icy stance on credit costs and ro­bust eco­nomic growth prospects would en­hance over­seas fund flows and help strengthen the ru­pee. The for­ward premium — a mea­sure of the ex­pected move­ment for the lo­cal cur­rency in its pair­ing against the dol­lar — de­clined about 14 paise in the past two days to ₹ 2.81 for the one-year ma­tu­rity con­tract af­ter the cen­tral bank re­duced the bench­mark pol­icy rate by a quar­ter-per­cent­age point Wed­nes­day.

For­ward premium is the spread or gap be­tween the pre­vail­ing ex­change rate and the higher level used in for­ward cur­rency ex­change deals.

“Ex­porters are sell­ing in a big way af­ter the RBI’s in­ter­est rate cut,” said Anindya Baner­jee, an­a­lyst at Ko­tak Se­cu­ri­ties. “With the lat­est ru­pee rise, their gains from the for­wards premium are now capped as they re­alise lesser value on their ex­ist­ing con­tracts.” “Many ex­porters are rush­ing to book fresh for­wards con­tracts to cover their fu­ture re­ceiv­ables,” he said. The ru­pee Thurs­day hit a fresh two-year high, clos­ing at 63.68 a dol­lar, a tad stronger than a day ear­lier. Dur­ing the day, it reached as high as 63.56. A stronger ru­pee cou­pled with fall­ing for­wards premium yield lower value re­al­i­sa­tion for ex­porters who book for­wards con­tracts. Sim­i­larly, a weaker ru­pee cou­pled with ris­ing premium is good news for com­pa­nies with off­shore re- ceiv­ables.For in­stance, an ex­porter who booked one-year con­tract two days ago would have taken the ex­change rate at about 67.06 (spot ex­change rate plus premium) com­pared with 66.50 now. This means, an ex­porter lock­ing in for­wards now have to fork out more dol­lars. “Look­ing at the huge over­seas in­flows, ex­porters need to cover at least three-fourths of their con­firmed re­ceiv­ables,” said KN Dey, man­ag­ing part­ner, United Fi­nan­cial Con­sul­tants, a Mumbai-based forex firm. “The ru­pee looks to be on a ris­ing path. A fur­ther ap­pre­ci­a­tion may hurt In­dia’s ex­port c o mpet­i­tive­ness. When­ever the in­ter­est rate dif­fer­en­tial be­tween the US and In­dia nar­rows, the (ru­pee-dol­lar) for­wards premium dips.” For­ward trans­ac­tions in the forex mar­ket are ei­ther at a premium or a dis­count to the ru­pee’s spot rate. Typ­i­cally, the ma­tu­rity dates of for­ward trans­ac­tions are in the range of one month to a year.

A ris­ing ru­pee means ex­porters get less cash from their over­seas re­ceiv­ables

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