Forward contracts at the exchange rate of Rs48 limit profits

With Indian rupee getting closer to level of 52 against dollar, the all time low level, the exporters are still not a position to take advantage of the depreciation. Their reliance on earlier projections by various analysts and experts that rupee may not touch the mark of 51 and is likely to rebound to around 47 level by the end of March 2009 prevents them from major gains. They have made forward contracts at the exchange rate of Rs47-48 against the dollar, but contrary to their expectations, the dollar is being traded at around 52 level as of now.

"Ideally, weakness in rupee works in favour of exporters, as their export revenues in rupee terms shoots up. But nobody expected such a fall in rupee. So many exporters made future contracts at the exchange rate of 47-48 2-3 months ago, which now prevent them from making major gains due to the depreciation," said president, forex advisory division, Vadilal Enterprises Limited, Aspy Bharucha.

The rupee has depreciated by over Rs3 in last 60 days. On January 1, it was at around 48.78 level against dollar and on Monday, it has come down to 51.90 level, posting depreciation as high as around 6%. "There are various factors behind depreciation of Indian rupee. But due to this, not only importers, but exporters also stand to lose. For importers, the shipment has become costlier while in case of exporters, they have either signed forward contract at the exchange rate of 47-48 levels or they are not in a position to make huge profit due to lack of demand in overseas markets," said Bharucha.

"We have not got any fresh contracts with exchange rate in the range of Rs51-52 against dollar. We are still getting payments as per the contract signed earlier. Moreover, demand is still subdued in the western countries," said Jaimin Vasa, president of Gujarat Chemical Association.

"No body expected such as vast depreciation in Indian currency. Now, industry is trying hard to tap new markets such as Latin America, Syria and Turkey at the current exchange rate of around 52. So we may be able to reap the benefit of depreciation in rupee in next 4-6 months," said managing director of Aarvee Denim & Exports, Ashish Shah.

Sachin Kumar & Himansh Dhomse/ DNA-Daily News & Analysis Source: 3D Syndication