While many worry about the impact of the rupee's rise (it has risen 9 per cent in the last 12 months) on company profits and therefore the sensex, HSBC says the concern may be overdone. For one, it says while some firms have natural hedges (imports get cheaper as exports get more expensive), others can buy forex covers. In any case, HSBC estimates that less than half of Sensex firms and a little over half the businesses in the Nifty 50 have an exposure to a weakening dollar. Within these, the sectors identified as sensitive to currency fluctuations are forecast to contribute just a little over a quarter of their earnings growth for FY 08. HSBC then does an analysis of the rupee's impact on major sectors (Bajaj Auto and Mahindra will be hit in the auto sector; the impact will be positive in the construction/engineering sector; the rupee will appreciate 3-5% more than what most IT firms have assumed; and so on). Over-riding all this is the calculation that, as HSBC puts it, an appreciating rupee enhances returns for a foreign investor. In other words, the rupee appreciating will attract FIIs. Corporate earnings slowing down are a different matter.
