15/12/2011
The almost violent movement in the rupee in the past three weeks has turned the trading strategies of corporates upside down, with exporters refraining from selling dollars and importers running for cover to save themselves from getting washed away by the currency tide.
The outlook on the rupee has deteriorated so fast that most bets in the past few months have gone for a toss as complacency gives way to the reality of deteriorating Indian macro fundamentals and the emerging currency crisis induced by the European sovereign credit mess.
"Nobody had a view that the rupee would break the pre-Lehman crisis levels and that too so fast, hence no one was positioned for the move," said Vivek Rajpal, India rates strategist, Nomura Securities. "In terms of corporate hedging, they are not well hedged. Most of the hedging happened with the view that rupee will not breach pre-Lehman crisis levels."
The outlook on the Indian currency has changed so suddenly that most strategists, who till a few months ago were for appreciation of the rupee due to strong economic growth, are caught on the wrong foot. The past rosy outlook made exporters sell their receivables at around Rs 5-47 to avoid losses, but they are facing opportunity loss as they won't benefit from the current depreciation.
Confident importers who took the strength of the rupee and the economy for granted and booked goods overseas at about Rs 45- 47, are now running for cover as their cost have jumped more than 10% in a matter of a few days.
The rupee has fallen 19.05% this year, while since August 2011, it has depreciated 18.36%. In the last one week, since December 6, the currency has depreciated by 3.5%. It closed at a record low of Rs 53.22 to the US dollar.
The RBI's ability to intervene is limited by the fact that India's forex reserves might just be enough to meet its external debt and liabilities for a year. While foreign exchange reserves are around $306 billion, it might actually not be "adequate" if our external balances are factored in. At the end of March 2011, India's external debt stood at $305 billion. Thus it leaves very little room for the RBI to intervene in the currency markets aggressively.
"The rupee might fall further to 56-57 per dollar in the next two-and-ahalf months. 55 per dollar is the level we expect the rupee to stabilize on. We have issues on the fiscal front that need resolution. We hardly have any dollar inflows," said Vikas Bairolia, currency analyst, Nirmal Bang Securities.
Article in Economic times : http://economictimes.indiatimes.com/markets/forex/rupee-fall-hedging-strategies-go-for-a-toss/articleshow/11101946.cms
The almost violent movement in the rupee in the past three weeks has turned the trading strategies of corporates upside down.
