Sunday, April 12, 2009

Impact of Dollar Fluctuations on Indian Companies







With the American dollar swinging from Rs.38 per US$ to Rs.52 per US$, many companies which dealt with dollar are likely to be impacted. The worst affected being Export oriented compnies like Textiles, Gems & Jwellery and Software among others.
Infact when dollar started sinking initally, many companies hedged their contracts or bills receivable by holding a selling contract at say Rs.42. Now when the dollar appreciated ( and rupee depreciated) many of these companies lost their shirts. Ambitious ideas of their Forex analysts has put thee companies in unforseen losses. Infact those companies which didnot have the expertise to do such hedging ( and smarter moves to protect themselves from these fluctuations) have done much better.
  • Infact like lot other people, we do assume that Software and export companies are the one affected by these effects. You would be surprised to see a whole list of companies which are likely to throw up surprises in the upcoming Q4 results.
  • The reason why other companies which are no way related to exports go affected was : It is not only the bills receivable ( like in software companies) that result in dollar losses, but even Foreign Currency Convertible Bonds (FCCB) and External Commercial Borrowings (ECB) . When a company borrows money from other countries and the exchange rate at that time was Rs.40 per dollar, now when the time is up for repayment the ratio is Rs.2per dollar. In other words the poor indian company has to shell 20% more INR to buy dollar and repay.

It is rather a complicated subject. But it is better we know the end result of these dollar business with reference to companies impacted by the same. Do read the table given here for more clarity. You may post your "comments" for more information.

No comments:

Post a Comment