With the direction of the rupee-dollar rate becoming more unpredictable, the Indian corporates are putting in place an effective currency risk management.

Gone are the days when the movement of the Indian rupee was unidirectionalsliding southwards. In the last couple of years, on the back of a strong economic growth and increased interest from foreign investors the rupee has started gaining strength particularly against the US dollar, moving northwards much to the agony of the software exporters. Though the dollar came back slightly in the past couple of months, one thing seems to be certainthe rupee movement is not one way. The tussle between the dollar and the rupee will affect the Indian industry positively as well as negatively. The net importers like the oil companies will gain from dollar depreciation, but export-oriented companies especially those dealing with in pharmaceuticals, software and ITES stand to lose. If the dollar appreciates, fortunes will take a reverse turn.

The fluctuating rupee-dollar movement calls for an effective currency risk management by the Indian companies. Reiterating the changed scenario and the importance of managing currency risk in such a scenario, Venkatesh S Bijoor, Consultant at Prime Forex says, "Indian exporters up to the year 2000 were enjoying the benefit of one way rupee depreciation. As such, they were better off taking cash rates for their exports. Things started to change from 2000 and the rupee started to appreciate. The exporters who had not hedged lost substantially on the foreign exchange front. To give you an example 10 crores turnover (US$ 2.2 mn) lost on exchange margin of 5-8% from 2001 to 2004 (i.e., Rs. 50 lakh to 80 lakh).

This has created a fairly significant impact, especially in a competitive business environment where the focus is on top line and bottom line growth. Even a 2% variance between the expected and actual results will affect the stock price at least in the short run. Software companies who ignored managing currency risk for decades have started to think about it seriously in the last one and a half years with the rupee-dollar becoming more volatile and unpredictable.

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