For the most part of FY08, exporters watched in dismay as the rupee went from strength to strength. As it breached the Rs 40-mark, and capital inflows continued, experts predicted that it would probably hit Rs 35.
But the sub-prime crisis in the US has changed all that.
Today, at Rs 46.05 to the dollar, the rupee has depreciated by around 8.5 per cent over the past one month alone. Since July, it has come off by about 5.5 per cent from Rs 43.33. Exporters, across the IT, pharma, textiles sectors should be rejoicing.
After all, their revenues will get a big boost. However, the joy may be short-lived especially for those with foreign currency exposures and FCCBs. Companies including the likes of a Ranbaxy, Hindalco, Tata Motors and Bharat Forge may have to post a higher “marked to market” loss in the September 2008 quarter.
Companies like Infosys that mark-to-market their exposures at the end of every quarter will probably benefit more than those like TCS that hedge their cash flows. But, that will be a small consolation.
The earnings numbers in the June 2008 quarter saw fairly large mark-to-market losses by companies. Many of them, however, did not route these losses through the profit and loss statement.
India’s biggest exporters in FY08 were TCS, Infosys, Sesa Goa, L&T, Ranbaxy,
Dr Reddy’s, Arvind, Hindustan Zinc, Nalco and Adani.
The falling rupee will no doubt come as a much-needed relief for IT firms — typically, a 1 per cent depreciation in the rupee pushes up operating margins by about 25-30 basis points.
Volume growth could remain subdued with IT spending almost certain to be scaled back in the wake of the continuing financial crisis in the US, a significant geography for tech firms.
The story is not too different for other sectors. Textile players, such as Welspun and Gokaldas, could see demand coming off as retail consumption in both the US and UK markets remains at less than anticipated levels.
The going has not been as difficult for pharma companies with generics players in particular gaining share in overseas markets. However, the gains from the rupee may be offset by their mark to market losses.
Some companies, such as Cipla and Dr Reddy’s are believed to have hedged their foreign exchange earnings at a lower rate of around Rs 42-43 and could lose out if the rupee stays at these levels.
Engineering firms like Bhel, L&T and Suzlon, however, should be net gainers even after paying a higher price for imported raw materials.
Oil refining and marketing companies are likely to be badly hit due to the impact on their foreign loans, which they will need to mark to market.
Also, according to analysts, every 5 per cent depreciation in the rupee increases the subsidy by about Rs 13,100 crore. However, earnings may not be impacted if the government helps out with more oil bonds.
The raw materials bill for auto companies will certainly go up, since most of them import aluminium and it’s unlikely they can make up for it with higher exports.
