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Exporters get breather as rupee stabilises

business Updated: Mar 16, 2008 23:06 IST
BS Srinivasalu Reddy
BS Srinivasalu Reddy
Hindustan Times
Highlight Story

Exporters, who have been reeling under pressure from a strong rupee that has eaten into their profit margins can take a breather for now. The domestic currency is unlikely to see a revival till the foreign institutional investor (FII) inflows resume in a big way, which is not expected until the second half of 2008, analysts say.

And with some kind of hedging – foreign exchange transactions to minimise risk -- even textile mills, considered the most vulnerable to the strong rupee, would be in a position to enlarge their margins for a year or two.

The rupee, which gained over 12 per cent against the dollar during 2007, has slid nearly 4 per cent to Rs 40.72 in the new year from Rs 39.18 in the early January. However, the domestic currency closed marginally stronger at Rs 40.43 on Friday.

Responding to a query on the rupee outlook, Sudhir Joshi, Head –Treasury of HDFC Bank said, “It all depends on foreign fund inflows. According to our internal estimates rupee will cross Rs 41/dollar mark before it strengthens (again).”

The rupee is significantly linked to the US dollar and the situation cannot be changed overnight. The downward pressure on dollar, arising from sub-prime crisis in the US arising out of bad home loans in the local economy, is also reflecting in spiralling gold prices worldwide because the US is seen headed for a recession.

While rising global oil prices have increased import costs and fuelled demand for foreign exchange, inflow of FII funds increased the supply of dollars into the economy. With FII inflows slowing, the rupee is weaker. If there is a recession in the US, remittances from NRIs may also come down. However, in the complex derivatives market, exporters have already taken hedging positions that can get garner higher revenues from foreign exchange deals to offset losses in export revenue.