Textile exporters are raising the hedge cover for their export earnings as they feel that the Indian rupee has hit a bottom and will gain value against the US dollar in the coming months.
Exporters with whom Business Standard spoke said they now planned to hedge as high as 70 per cent of their receivables from the current average of around 50 per cent.
This comes in the backdrop of the Indian rupee falling 15 per cent since August 2008 to 48.7 to a dollar. This is because the demand for dollars has increased on account of foreign investors taking money out of the equity markets here.
This has taken textile exporters by surprise as they never expected the dollar to strengthen nearly 21 per cent this year. The rupee was at Rs 39.82 in September 2007.
One of the biggest garment exporters, Orient Craft, has hedged orders worth $55 million. This is nearly 50 per cent of its export orders for this year. Sudhir Dhingra, chairman and managing director, said the company was hedging 70 per cent of its dollar earnings for future orders.
Forward hedging of currency is a safeguard against an expected fall in the value of the dollar. “It is indeed a very encouraging development for the textile industry. The situation was exactly the opposite last year, when the dollar touched the Rs 39 mark. Most exporters who hedge keep the level at 50 per cent, but in this situation the ratio is expected to reach above 70 per cent,” said DK Nair, secretary general, Confederation of Indian Textile Industry, an industry body.
Textile exporters had a tough time last year, when the dollar depreciated sharply, leading to reduced orders as the margins per shipment were low. This resulted in India falling short of its export target for textiles by 18 per cent. The target was $25 billion while the achievement was $20.5 billion.
The fall in the value of the rupee is a boon for the industry. The exporters will increase their hedging at this level as this is the highest value the dollar has touched in the last seven years.
“However, some exporters may wait for the dollar to reach the 50 mark before they raise their average hedging ratio to 70 per cent,” said A Sakthivel, president of the Tirupur Exporters Association.
