Unlike 2008, Indian firms well hedged now for Brexit

MUMBAI: Indian companies are on a stronger wicket compared with the last time global financial markets faced volatility in 2008, as they have tightened risk management, left few positions uncovered and ensured that they have not taken undue risks on currencies.

Past experiences and the Reserve Bank of India’s constant nudging have led many of them to hedge their positions, which will protect them from volatility due to the Brexit vote, foreign exchange consultants said. “Indian companies are much better placed this time because they have a risk-management process in place. There are also guidelines in place for hedging which means unlike earlier, companies cannot take an extreme position on foreign exchange,” said Subramaniam Sharma, founder and director at Greenback Forex, a foreign exchange consultancy.

Earlier, in a conference call with journalists, RBI Governor Raghuram Rajan said that the rupee has been “well behaved” compared to the 6-7% drop in currencies like the Mexican peso.

“Corporates over time having experienced higher volatility have made two kinds of adjustments. The amount of external borrowing has come down in the last few quarters as well as we have seen early warnings about hedging and the amount of hedging has gone up,” Rajan said.

Rajan also pointed out that foreign exchange loans from companies are five to six years in duration. “The issue of repayment in a stronger currency will not arise for some time, by which time hopefully the currency will re-establish into a new equilibrium which is not based on immediate reactions,” he said.

Also read: How and why Brexit happened

Close to $5 billion of overseas debt is maturing between now and end-December, mostly borrowed by public sector companies and banks, data from Bloomberg showed.

Rajan said there is little to be concerned about on bank exposures as the central bank continues to monitor these positions.