Indian Rupee’s Depreciation ‘Adding to Corporate Treasury Dilemma’

India’s rupee (INR) has depreciated by more than 10% in space of a month and the accompanying high volatility affecting the currency is adding to corporate treasury dilemma, especially for companies dealing with commodities and the IT/ITEs sectors, suggests a KPMG report.

According to the KPMG India survey, entitled ‘Managing currency and commodity risks’, a stronger organisational risk culture and greater support from the management are seen as being the major areas of improvement for better risk management. The dilemma of how much to hedge and for what tenor are issues that confront most treasurers, the survey suggests.

Companies do not want to lose out to competition in future because their portfolios are aggressively hedged nor do they want to miss out on the current opportunity of locking in profits on their exposures.

“Active management of the risk of fluctuations in the currency market is no longer an option, it is a necessity and vital to maintaining business profitability,” said Kuntal Sur, director, financial risk management, KPMG India. He added that the time has come to go beyond ‘crystal ball’ gazing, as the companies that relied on market expert views had been left with red on their financial statements. With currencies moving over 10% in a month you need an independent risk management process rather than a crystal ball, Sur said.

Around 87% of the survey respondents said that a stronger organisational risk culture would help in improving risk management in the company. In addition, most said that they also saw a need for better communication between the treasury and the business units.

The survey further noted that while the urge to foresee the future and beat the market is high, an increasing number of companies recognise that it is better to be prudent and hedge exposures in a structured manner, than to rely on market gurus and their ever changing forecasts.

The INR last week sank to an all-time low of 60.76 against the US dollar (USD) on heavy capital outflows and month-end dollar demand from importers.

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