Indian exporters delay dollar shipments in search of higher profits, harming the rupee

With the rupee hitting historic lows this year, Indian exporters are holding back on dollar sales in the anticipation of a further decline.

On Wednesday, the rupee dramatically crossed the 83-to-a-dollar threshold as the Reserve Bank of India stopped supporting it at levels around 82.40.

The following day, it reached a record low, and by the end of this year, it is predicted to have decreased much more to roughly 84.50.

Brokerages and bankers agreed that they are urging their exporter clients to either hedge less or not at all because it has become challenging to estimate the rupee's final normal range, with the sole certainty being that it would decrease.

According to a treasury sales official at a major private bank, "we are urging exporters to hedge only partially, roughly 15%-20% of their risk," down from anything between 40%-60% during normal times.

The U.S. Federal Reserve's continued aggressive rate raise programme, growing current and trade account deficits domestically, and foreign investors continuing to sell risky assets out of concern for a global recession are just a few of the problems the rupee is facing.

Exporters will benefit from a falling rupee since it will boost their income. They therefore prefer to hold on to their money for longer knowing that a steady slide is on the horizon.

RBI INTERVENTION RAISES DIFFICULTY

The RBI has been intervening in both the spot and future markets to shield the rupee from steep declines.

The dollar sales have become even less appealing as a result of the buy/sell swaps in the future market, which have caused forward premiums to drop to their lowest level in more than a decade.

The 1-year forward indicated yield for the USD/INR currency pair is currently 2.45%, down from 3.07% earlier this month and significantly from 4.75% at the beginning of 2022.

The local unit has been further harmed by the lowering premium's impact on the dollar supply shortage.

"They (exporters) reduced (the frequency of) going to the market after the rupee crossed 80 to the dollar because premiums fell. Nobody wants to sell dollars unless we give them a yield of at least 3%-3.5 percent, "said Abhishek Goenka, the company's founder and CEO. IFA Global is a currency advisory service.

Although the demand for imported goods is still strong, exporters are reluctant to part with their money, creating an unnatural imbalance, he continued. "For that reason, the rupee is falling."

Nearly 12% less than its Asian competitors, the rupee has lost value against the dollar.

According to Goenka, even a 1 to 1.5 rupee increase would "alter the game" and instil a "fear of missing out," causing exporters to sell dollars.

Associate vice president at Mecklai Financial, Kunal Kurani, stated that the company was advising its clients to maintain their dollars in the Exchange Earners Foreign Currency (EEFC) account and only convert when the USD/INR rate increased.

Exporters are permitted by the RBI to hold onto their foreign revenues for up to a month in an EEFC account.

According to Kurani, timing the movement of the rupee's level has grown challenging.

The recommendation is to hedge above 83.50, however this is being done cautiously to safeguard the client's margins and bottom line.