Stocks of companies with Japanese link hit

A strengthening yen is weighing on stock prices of Indian companies with a strong Japanese connection.

On Thursday , passenger car major Maruti saw its stock close nearly 3% lower at Rs 4,084 as analysts felt that a rising yen will lead to higher royalty payment in rupee terms and make import of components costlier.Along with Maruti, stocks of companies like Lumax Industries, Hitachi Home, Honda Siel Power, Sharp and Sona Koyo Steering also came under sel ling pressure due to the strengthening yen, which touched a 22-month high against dollar.

A slew of factors, including Bank of Japan's rejection of any more monetary stimulus and US Fed's decision to maintain status quo on rates, made the yen stronger against major currencies. The reasons which led to weakness in dollar also include the fear of UK exiting the EU, which could weigh on the British pound as well as euro.

Given the global factors stacked against the dollar, euro and the pound, the yen emerged the safer bet among the four major currencies. In rupee terms, the RBI's reference exchange rate for yen has gone up Rs 51.91 per 100 yen to Rs 64.55 now -that's a depreciation of 24.3% for the Indian currency in the last one year.

Currently , Maruti pays 6% of its sales as royalty in yen to Suzuki. Only from this fiscal, it has started paying royalty in rupee but that is limited to one car.According to analysts, currently the value of its yen-dominated monetary obligation is about 14% of its sales, and a 10% appreciation of yen against the rupee can shave off nearly one percentage point from its gross profit margin.