Im­porters’Un­hedgedCur­rency Po­si­tion­sRise­with­StrongRu­pee

Cos have stayed off from cov­er­ing their payables as it would re­duce their re­pay­ment costs. Un­hedged po­si­tions pose a risk if global con­di­tions worsen

The Economic Times - - Finance & Commodities - Times­


Mum­bai: The ap­pre­ci­at­ing ru­pee may re­flect the strength of In­dia’s econ­omy, but an un­in­tended con­se­quence is the com­pla­cency set­ting in among im­porters and bor­row­ers. The level of un­hedged for­eign cur­rency po­si­tions has risen sub­stan­tially and poses a sub­stan­tial risk if global con­di­tions turn ad­verse. With the lo­cal cur­rency strength­en­ing, In­dian com­pa­nies have stayed away from cov­er­ing their for­eign ex­change li­a­bil­i­ties be­cause it would re­duce their re­pay­ment costs. When the ru­pee ap­pre­ci­ates against the dol­lar, fewer units of the lo­cal cur­rency are needed to pay back each dol­lar. Un­hedged or un­cov­ered po­si­tions may have in­creased by as much as 60%, ac­cord­ing to in­dus­try es­ti­mates.

“With a rise in the ru­pee’s value, many im­porters are now com­fort­able to keep their payables open,” said Ab­hishek Goenka, founder of IFA Global, a Mum­bai-based forex con­sult­ing firm. “The ru­pee’s out­look has sig­nif­i­cantly changed over the past six months as the lo­cal unit is now ex­pected to rise against the dol­lar amid the coun­try’s eco­nomic op­ti­mism.” Un­hedged bets have in­creased at least by 50-60% as im­porters have drawn com­fort from the ru­pee’s lat­est rally against the green­back, Goenka said. Un­hedged po­si­tions help com­pa­nies save on costs, adding to their bot­tom line when the econ­o­my­ison­the­cusp of growth, bur­nished by the gov­ern­ment’s re­form poli­cies. The ru­pee has gained more than 6% this cal­en­dar year. About a year ago, the hedg­ing ra­tio, which the Re­serve Bank of In­dia in­sists upon in a volatile cur­rency mar­ket, was much bet­ter. Com­pa­nies now pay about 4.3% as hedg­ing cost for a one-year ma­tu­rity. “With ex­ter­nal bor­row­ings/loans, im-

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