Indian companies plan to review their foreign exchange policy, including withholding sales of foreign currency, to get a better rate of return after failing to cash in on the 4.5 per cent decline in the currency against the US dollar in the past two weeks.
"With the current volatility in the rupee-dollar exchange rate, I think we need to revisit the policy," Anil Patwardhan, CFO, KPIT Cummins Infosystems, said.
The rupee fell to 42.51 against the dollar on May 16 (it was at Rs 42.90 intraday) from a peak of Rs 39.78 on April 17. KPIT Cummins hedges its dollar earnings for four quarters on a rolling basis, he said.
Domestic software and other exporting firms have been agreeing to sell at least half of their dollar denominated earnings after the rupee appreciated against the greenback by about 7 per cent in the last year (April 3, 2007 to April 2, 2008).
A change in this strategy will mean companies holding back their foreign exchange, which may bring down the liquidity in the system.
Textile firms, which have been hit by the slowdown in the US market and other developed countries, plan to begin selling foreign exchange after the rupee falls to 43 against the dollar.
"For the time being, we are holding the dollars," R K Dalmia, president, Century Textiles, said.
"We will sell at least 50 per cent of the earnings if the rupee crosses the 43 level. Nobody knows when the currency will start appreciating."
The textile industry could not meet its export target for the year 2007-08. The industry could manage to reach $20.5 billion against the target of $25 billion, falling behind by 18 per cent.
Some exporters started selling dollars soon after the rupee touched 42 against the US currency because of uncertainty.
"Why to wait in such uncertain circumstances,'' Sunil Khandelwal, chief financial officer, Alok Industries, said. The company is selling about 50 per cent of its foreign exchange earnings.
Companies, such as KPIT Cummins, plan to sell their foreign exchange earnings immediately to benefit from the decline and make up for earlier losses.
"In the current situation, we certainly see an opportunity and will try and get as much advantage as possible," Patwardhan said.
Still, some software exporters don't see much benefit from a decline in the currency.
Mastek agreed to sell about half of its dollars at between Rs 39.50-40. "For us, it will not add significantly to the bottomline," R S Desikan CFO and director (finance), Mastek, said.
A sustained decline in the rupee against the dollar will prompt several exporting companies to also change their raw material hedging strategy.
The depreciation of the rupee has squeezed the profit margins of diamond jewellery exporters as they hedged their raw materials, including rough diamonds and gold between Rs 40-40.5 to a dollar, anticipating the rupee to strengthen to 38 against the dollar.
"Those who booked their exposure three months ago, will end up paying at least 8 per cent more," Sanjay Kothari, chairman, Gems & Jewellery Exports Promotion Council, said.
Some industries expect the currency to strengthen to as much as 37 to the dollar. "We felt the situation could worsen further," P D Patodia, chairman, Confederation of Indian Textiles Industry, said.
Others, including Ganesh Natrajan, deputy chairman and managing director of Zensar Technologies, see a fall in the rupee as a temporary phase.
"We expect the rupee to be around 39-39.5 a dollar by year-end," said Natrajan.
A steady decline in the dollar, along with the slowdown in the US, had forced some jewellers to drop the purity of products.
Diamond jewellery consumers in the US, which is the world's largest fashion market, are now demanding items with lower gold quantity in line with their expenditure target, Pravin Nanavati, joint secretary of the proposed Gems and Jewellery Park in Surat, said. He is also a jeweller by profession.
"A section of white gold consumers have started switching to silver. The purity level has dropped to 10 carat from 14 carat in the jewellery exported to the US."
According to government estimates, the total value of jewellery exports to the US stood at $4 billion in the financial year ended March 2008 (FY08), as compared with $2.9 billion in FY06.
