The Telegraph
Since 1st March, 1999
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India Inc frowns at rupee surge

New Delhi, June 24: The surge in the rupee value has severely mauled India Inc, says a study by apex chamber Ficci.

The study, covering 100 importers, exporters and banks, noted that the profits of 59 per cent respondents have been adversely affected while 49 per cent believed that recent developments have affected their competitiveness in the international market.

In order to offset the negative impact, the companies have taken various measures, including cost cutting measures to insulate their earnings from the appreciating rupee, introduction of new systems and mechanisms to improve their efficiency level and exploring new and untapped markets.

Although a good chunk of respondents surveyed said that they had not raised foreign currency loans (either in dollar or in euro) in the recent past, but in the light of appreciating rupee and decreasing forward premia, 70 per cent of the respondents expressed their desire to access the dollar debt market.

With the euro becoming expensive, 49 per cent of the respondents foresee firms swapping their euro debt liabilities with dollar debt to reduce the cost of borrowing, the survey said. The survey also highlights that the software sector has been affected the most as viewed by 85 per cent of the respondents, followed by textiles (65 per cent), gems and jewellery (50 per cent) and engineering (35 per cent).

According to the findings, the exchange rate developments have sounded Europe as lucrative market to trade with. Almost 41 per cent of respondents said they would like to enter the European market followed by the US (28 per cent) and Africa (26 per cent).

Although 51 per cent respondents were of the view that the present hedging mechanisms such as forward contracts are developed enough to effectively handle exchange rate mechanism, 62 per cent companies felt that “there is a need to widen and deepen the market by introducing new products”.

Ficci samples that new products needed by the market include Re/$ options, Re/$ futures, interest rate options, interest rate swaps and caps and bands. Also, 67 per cent respondents favoured invoicing in euro with dollar depreciating against rupee.

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