Sliding Rupee. Companies with overseas liabilities rush to cover currency risk

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Companies with overseas liabilities rush to cover currency risk

We have been writing in these columns that the importers and companies having overseas liabilities should hedge their positions as Rupee was sliding fast and U S Dollar appreciates.

With the rupee breaching the psychological ₹80 versus the US dollar for the first time and the spot market USD-INR gauge heading towards that mark, companies that have significant overseas liabilities fear margin pressure will impact their nascent revival after the pandemic.
Importers and overseas borrowers are rushing to cover their currency risk after the rupee fell to Rs 80 against the US dollar in both over-the-counter and derivatives markets on Thursday, leading to forward premium jumping 11-17 basis points across maturities on Friday.
One basis point is 0.01 percentage point.

Oil companies and diamond merchants are among those rushing to hedge against likely further fall of the rupee.
“Importers are now hurrying up to cover their currency risk amid extending rupee’s losses,” said Bhaskar Panda, senior executive vice president at HDFC Bank

 Another currency analyst, said, “Importers are demonstrating a bit of panic in the past two days with the rupee hitting psychological lifetime low levels. Even the most aggressive risk taker is now inquiring about forward contracts as plunging rupee erodes their profit margins with rising input costs.”
He expects more clients to buy currency hedges “amid a fear factor”.

The rupee hit its latest lifetime low on the spot market on Friday at 79.96/$, and the Reserve Bank of India (RBI) prevented its further slide to 80 during the stipulated trading hours.
Analysts at Nomura have predicted that the Indian currency is likely to fall to 82 against the US dollar in the third quarter of this calendar year, citing the country’s record high trade deficit.

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