Indian Exporters Say Rupee Volatility Making Hedging Tough

05/16/2012| 08:36am US/Eastern

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-- Indian rupee sinks to an all-time low; U.S. dollar hits INR54.52

-- Lupin says difficult to predict the bottom for the rupee

-- HCL Technologies says wide currency fluctuation hurting decision-making

-- Lupin, HCL Technologies don't expect quick respite from rupee volatility

(Recasts the first paragraph, adds comment from HCL Technologies in 5th and 11th paragraphs)

By Rumman Ahmed and Dhanya Thoppil

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Indian software and pharmaceuticals exporters said Wednesday the sharp volatility in the rupee is baffling and is making it difficult for them to decide on their currency-hedging strategies.

"It [volatility] leads to action paralysis because we don't know what the bottom is [for the rupee]," said Ramesh Swaminathan, president of finance and planning at generic-drug maker Lupin Ltd. (500257.BY).

The rupee sank to an all-time low against the U.S. dollar Wednesday, with the greenback touching INR54.52. The dollar's previous record high was 54.2925, struck on Dec. 15, 2011.

The rupee slumped 16% in 2011, making it Asia's worst-performing currency. It rose as much as 9% earlier in 2012, before resuming its slide because of concerns related to the euro zone's debt problems and India's fiscal troubles. The local currency is now down more than 2% so far this year.

"If it [the currency fluctuation] is in such a wide band like it's now, it impacts decision-making. You have to think of what sort of exchange rate to assume," said Anil Chanana, chief financial officer at software company HCL Technologies Ltd. (532281.BY).

Companies like Lupin and HCL Technologies are exposed to fluctuation in foreign-exchange rates because of their large dependence on exports.

A weaker local currency inflates the sales in rupee terms for these companies. However, wrong bets--when the dollar gains from the levels at which the companies have locked in forward contracts to sell the currency--could lead to hedging losses.

Lupin gets close to $700 million, or 65% of its total revenue, a year by exporting generic and branded drugs, which it makes largely in India. HCL earns the bulk of its revenue by providing software services to clients in the U.S. and Europe.

Both Lupin and HCL Technologies said they don't see a respite from the rupee volatility any time soon.

The pressure on the rupee will sustain unless India brings in financial reforms and restores confidence among overseas investors, Lupin's Swaminathan said.

HCL's Chanana said the uncertainty in global and domestic economies are likely to continue, and to that extent the rupee is likely to remain volatile.

The rupee has been falling despite the central bank's suspected heavy interventions in the currency markets. And on May 10, the Reserve Bank of India ordered exporters to sell half their foreign currency holdings within two weeks, in an aggressive move to prop up the rupee.

But, that hasn't helped much.

"The RBI has to think of something more innovative than this," Swaminathan said.

-By Rumman Ahmed and Dhanya Thoppil, Dow Jones Newswires; 91-9845104173; rumman.ahmed@dowjones.com

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