look news india
Mumbai: The company’s results are also expected to be weak in the third quarter of the current financial year due to the huge fall in the rupee against the dollar amid sluggish demand. Not only this, companies which have raised funds in dollar form from abroad will have to make additional provisions.
The rupee has currently crossed 85 against the dollar. Generally, most companies hedge their foreign exposure, but not the entire loan amount, otherwise companies may face higher costs, an analyst said.
The rupee has remained almost stable against the dollar in the last two years, but 2024 has seen a sudden sharp decline in the rupee against the dollar due to political geopolitical events.
Due to the devaluation of the rupee the Reserve Bank is also cautious in reducing interest rates and intervenes frequently in the currency market.
In case of rupee devaluation, exporters gain but importers suffer loss. India fulfills 85 percent of its crude oil needs through imports.
The analyst also said that further decline in the rupee against the dollar is possible next year, given the statement by US Federal Reserve Chairman Jerome Powell in last week’s meeting to reduce the interest rate only twice in the year 2025. ,
It said that for borrowers who have taken loans in dollar terms abroad, rupee denominated liabilities have increased, which may put pressure on their balance sheets and impact profitability.
Even in case of over hedging, companies have to make additional financial provisions. Profits of companies remained stable in the second quarter of the current financial year.
Margins of companies dependent on imported raw materials are also likely to come under pressure as they will have to provision more rupees to receive dollars.