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