Firms look at ways to control effects of Re appreciation
Most companies especially from textile and IT are trying hard to find solutions to reduce the effect of rupee appreciation on their margins.
By TNN |
The rupee appreciation has already affected most industries, barring oil and gas, who have benefited from the same. Most companies especially from textile and IT are trying hard to find solutions to reduce the effect of rupee appreciation on their margins. They are continuously trying to get the help of banks to avoid the further effect on the margins. We decided to seek the expert view to help the audience gauge their forex exposures better.
During the panel discussion HSBC, the sponsor had suggested various alternatives to manage the rupee rise. HSBC said that it expected rupee appreciation to continue without any depreciation in future. According to Mr Puneet Chaddha, country head commercial banking, HSBC, “The rupee depreciating in the near future is unlikely and is expected to depreciate in the times to come. The time has finally come that companies need to respond with interesting hedging strategies which would benefit them, in an appreciating rupee environment”.
Suggestions from Mr Puneet included a tax roll back, but he added that it would take time to implement the same. He said that from his experiences, there were two segments that are emerging: one that is seeing the rising rupee as a problem akin to the hike in petrol prices, rise in home loan interest rates etc. But then there are others who are also benefiting from the volatility. They are the one’s who have a clear idea about the movement and are using right hedging strategies that have resulted in aiding profitability”.
One of the concepts that Mr Puneet stressed on was of a ‘Natural Hedge’. By this Mr Puneet meant that companies should have the flexibility to go back to their suppliers and importers and share their concerns about the currency movements. Companies need to try and renegotiate rates depending on the fluctuation in the billing currency.
If company has a long time partnership with them, this would definitely benefit them in the time to come while hedging currency risk. Companies should also look at deferring their export receivables to match the movements in the currency. This could mean booking higher receivables at favourable rupee rates and deferring the same at unfavourable rates.
Summing up the discussion Mr. Hitendra Dave co-head of global markets HSBC said “That the rupee would continue to appreciate in times to come, and according to HSBC by end of FY08 rupee would be around 38.5 and by FY09 at 39. So its unlikely that rupee would move up.”
Looking at the continuous increases in crude prices Mr Dave added, “If crude were to touch three digits it is expected that the economic growth would slow down”. To avoid currency risk Mr Dave’s opinion was that exporter’s should be ready for hedging, but should also decide about when and how much to hedge.
Mr Dave is expecting that the RBI would give flexibility for managing treasury and help them provide more customer friendly solutions. He also suggested going in for forward rates and options strategies to reduce currency risk. Also one of the suggestion which was given by Mr Dave was “ if the company has rupee liabilities, it should swap them into dollars, as this will help them to reduce their liability”
He also mentioned that clients should regularly take suggestion of their bankers before taking any steps about currency hedging.
During the panel discussion HSBC, the sponsor had suggested various alternatives to manage the rupee rise. HSBC said that it expected rupee appreciation to continue without any depreciation in future. According to Mr Puneet Chaddha, country head commercial banking, HSBC, “The rupee depreciating in the near future is unlikely and is expected to depreciate in the times to come. The time has finally come that companies need to respond with interesting hedging strategies which would benefit them, in an appreciating rupee environment”.
Suggestions from Mr Puneet included a tax roll back, but he added that it would take time to implement the same. He said that from his experiences, there were two segments that are emerging: one that is seeing the rising rupee as a problem akin to the hike in petrol prices, rise in home loan interest rates etc. But then there are others who are also benefiting from the volatility. They are the one’s who have a clear idea about the movement and are using right hedging strategies that have resulted in aiding profitability”.
One of the concepts that Mr Puneet stressed on was of a ‘Natural Hedge’. By this Mr Puneet meant that companies should have the flexibility to go back to their suppliers and importers and share their concerns about the currency movements. Companies need to try and renegotiate rates depending on the fluctuation in the billing currency.
If company has a long time partnership with them, this would definitely benefit them in the time to come while hedging currency risk. Companies should also look at deferring their export receivables to match the movements in the currency. This could mean booking higher receivables at favourable rupee rates and deferring the same at unfavourable rates.
Summing up the discussion Mr. Hitendra Dave co-head of global markets HSBC said “That the rupee would continue to appreciate in times to come, and according to HSBC by end of FY08 rupee would be around 38.5 and by FY09 at 39. So its unlikely that rupee would move up.”
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Looking at the continuous increases in crude prices Mr Dave added, “If crude were to touch three digits it is expected that the economic growth would slow down”. To avoid currency risk Mr Dave’s opinion was that exporter’s should be ready for hedging, but should also decide about when and how much to hedge.
Mr Dave is expecting that the RBI would give flexibility for managing treasury and help them provide more customer friendly solutions. He also suggested going in for forward rates and options strategies to reduce currency risk. Also one of the suggestion which was given by Mr Dave was “ if the company has rupee liabilities, it should swap them into dollars, as this will help them to reduce their liability”
He also mentioned that clients should regularly take suggestion of their bankers before taking any steps about currency hedging.
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