Impact of exchange rate on Industry
RUPEE DEPRECIATION – INDUSTRY IMPACT
January 9, 2012
Backdrop
The rupee has, between August and December 2011, depreciated by 21%. This depreciation has caused much concern among industry groups as imports have become expensive, thereby amplifying costs of production and operation, and ultimately profitability. Given that India is a net importer with a sizable trade deficit, the net impact has to, a priori, be negative.
Objective
The aim of this study is to identify vulnerabilities on forex exposures, on account of depreciation of the rupee against the dollar, across various industry segments based on a simulation analysis of FY11.
We began with a universe of 7,691 listed companies to be used in this study. The sample contains 1590 listed companies (from this universe) that are characterised by forex expenditure of greater than Rs 10 crore (US $
2 mn). The sample is representative of trends discussed here as forex earnings by these
1590 companies accounts for 97% of total forex earnings by all 7,691 companies. Total forex earnings of these 1590 companies account for around 60% of India’s exports of goods and services in FY11.
These companies have further been classified into 19 broad industry groups1. We use net foreign exchange earnings of these companies as a proxy for their forex exposure. Based on trends observed in FY11, we rank industries on their expected forex risk, in the absence of hedging. Results
Of the 19 industries, 4 have been net gainers in forex earnings, the highest being recorded
1
6 sub-industries in the chemical industry and 1 sub-industry in non-metallic mineral industry have been identified
Study: Industry Impact of Rupee Depreciation
by IT, followed by textiles, two wheelers and commercial vehicles. The remaining industries have registered net forex earnings outgo, the highest in chemical industries and lowest in passenger vehicles. Higher raw material import cost has been the prime
January 9, 2012
Backdrop
The rupee has, between August and December 2011, depreciated by 21%. This depreciation has caused much concern among industry groups as imports have become expensive, thereby amplifying costs of production and operation, and ultimately profitability. Given that India is a net importer with a sizable trade deficit, the net impact has to, a priori, be negative.
Objective
The aim of this study is to identify vulnerabilities on forex exposures, on account of depreciation of the rupee against the dollar, across various industry segments based on a simulation analysis of FY11.
We began with a universe of 7,691 listed companies to be used in this study. The sample contains 1590 listed companies (from this universe) that are characterised by forex expenditure of greater than Rs 10 crore (US $
2 mn). The sample is representative of trends discussed here as forex earnings by these
1590 companies accounts for 97% of total forex earnings by all 7,691 companies. Total forex earnings of these 1590 companies account for around 60% of India’s exports of goods and services in FY11.
These companies have further been classified into 19 broad industry groups1. We use net foreign exchange earnings of these companies as a proxy for their forex exposure. Based on trends observed in FY11, we rank industries on their expected forex risk, in the absence of hedging. Results
Of the 19 industries, 4 have been net gainers in forex earnings, the highest being recorded
1
6 sub-industries in the chemical industry and 1 sub-industry in non-metallic mineral industry have been identified
Study: Industry Impact of Rupee Depreciation
by IT, followed by textiles, two wheelers and commercial vehicles. The remaining industries have registered net forex earnings outgo, the highest in chemical industries and lowest in passenger vehicles. Higher raw material import cost has been the prime