Rupee's surge a short-term boost for Nifty50 stocks
ET Intelligence Group : The rupee's recent appreciation against major currencies may prove to be beneficial in the short term for the Nifty 50 com panies at the aggregate level considering the sample's negative exposure to the foreign ex change (forex) movements. In addition, since just over one third of India Inc's forex borrowings are hedged, a stronger rupee should be able to reduce the debt servicing costs to some extent.
The rupee has strengthened by nearly 6% against the dollar since the beginning of 2017.
While economists are contemplating whether the trend will sustain in the coming quarters, ramifications of such a sharp move may be felt by corporate India in the short term.
The difference between the export revenue and the import cost is the forex exposure of a company's business activities apart from any forex loans on its balance sheet. For a sample of Nifty 50 companies, the net forex exposure on a standalone basis was negative Rs 72,901 crore in FY16 meaning the sample was net importer. The exposure has fallen significantly from negative Rs 2.7 lakh crore in FY12. This was largely on account of reduced exposure by the oil and gas companies following softening of crude oil prices over the past few years. A stronger rupee is a positive factor for the sample given its net import exposure.
Depending upon the proportion of unhedged positions in the foreign exchange (forex) market, net exporters, including IT and pharma companies, may book lower realisations, net importers such as oil and gas companies would report lower cost of goods and services. Since top IT exporters tend to hedge over 50-60% of the forex exposure, the impact of a stronger rupee will be lower to that extent.
Foreign currency borrowers may show lesser debt levels.According to a recent study by India Ratings, forex debt of the top 100 commercial borrowers in the country was Rs 8.1 lakh crore ($124 billion). Of this, only 36% was covered by using forex hedging practices. It means, a vast amount of the forex debt is susceptible to currency movements. While not all companies provide currencywise details of their forex loans, those in the metals, oil and gas, and telecom sectors with forex borrowings may benefit.
The rupee has strengthened by nearly 6% against the dollar since the beginning of 2017.
While economists are contemplating whether the trend will sustain in the coming quarters, ramifications of such a sharp move may be felt by corporate India in the short term.
The difference between the export revenue and the import cost is the forex exposure of a company's business activities apart from any forex loans on its balance sheet. For a sample of Nifty 50 companies, the net forex exposure on a standalone basis was negative Rs 72,901 crore in FY16 meaning the sample was net importer. The exposure has fallen significantly from negative Rs 2.7 lakh crore in FY12. This was largely on account of reduced exposure by the oil and gas companies following softening of crude oil prices over the past few years. A stronger rupee is a positive factor for the sample given its net import exposure.
Depending upon the proportion of unhedged positions in the foreign exchange (forex) market, net exporters, including IT and pharma companies, may book lower realisations, net importers such as oil and gas companies would report lower cost of goods and services. Since top IT exporters tend to hedge over 50-60% of the forex exposure, the impact of a stronger rupee will be lower to that extent.
Foreign currency borrowers may show lesser debt levels.According to a recent study by India Ratings, forex debt of the top 100 commercial borrowers in the country was Rs 8.1 lakh crore ($124 billion). Of this, only 36% was covered by using forex hedging practices. It means, a vast amount of the forex debt is susceptible to currency movements. While not all companies provide currencywise details of their forex loans, those in the metals, oil and gas, and telecom sectors with forex borrowings may benefit.
