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Rising rupee to hit export revival

The strengthening of the rupee against the US dollar does not augur well for the country’s exporters, who have just about started to breathe easy after the global downturn.

business Updated: Apr 06, 2010 21:34 IST
Sandeep Singh

The strengthening of the rupee against the US dollar does not augur well for the country’s exporters, who have just about started to breathe easy after the global downturn.

The rupee has appreciated by 13 per cent against the dollar and the euro over the past one year, meaning that their receivables will fetch them lower revenue after accounting for the currency exchange.

Industries that import their raw material --- oil marketing companies, for instance --- are smiling as the cost of raw materials comes down.

“The appreciation is definitely impacting exporters; I expect some more appreciation for the rupee,” said Abheek Barua, chief economist, HDFC Bank.

Information Technology as a sector received more than three-fourths of its total revenue from exports in the fiscal 2009 and textiles one-fifth, highlighting their dependence on overseas earnings.

Such companies have been hedging their revenues against currency volatility.

“Companies in the export-oriented industries are hedging their positions as they have been affected,” said Jamal Mecklai, CEO, Mecklai Financial.

But this measure does not come free: “There is a cost of hedging and that adds to the overall cost structure of the companies,” said Barua.

The exact impact has yet to be quantified. “In the worst-case scenario the revenues of IT companies could get impacted by 15 per cent while the oil marketing companies would benefit,” said Alex Mathews, head of research at Geojit BNP Paribas Financial Services.

Exporters have no option but to look at improving volumes. “They will have to increase their volume of exports to counter,” said Ashvin Parekh, national head, financial services, Ernst & Young.