After two years of relative stability, the rupee’s sharp decline is beginning to impact Indian corporate earnings, prompting several companies to hedge their currency exposures. The sudden depreciation is particularly affecting firms with significant foreign exchange liabilities.
InterGlobe Aviation Ltd., which operates IndiGo, India’s largest airline, saw its forex losses triple to ₹1,460 crore ($169 million) in the December quarter. Maruti Suzuki India Ltd., the country’s largest carmaker, also cited currency fluctuations as a factor negatively impacting its margins.
Smaller companies are not immune to the rupee’s slide, with NIIT Learning Systems Ltd. reporting a forex loss of ₹1.4 crore and Tanla Platforms Ltd. experiencing a currency impact of ₹4.4 crore. More such losses are expected as earnings reports continue to emerge.
The rupee has weakened by 2.4% against the US dollar over the past two months, marking the steepest decline among emerging Asian currencies. This has fueled speculation that the Reserve Bank of India (RBI) may have loosened its tight grip on the currency. While the RBI’s approach over the last two years helped curb volatility, it may have also led companies to underestimate forex risks.
With economic growth slowing and global uncertainties rising, businesses are now scrambling to hedge their exposures amid expectations of further rupee declines. “There was some complacency that had set in because the rupee was so stable,” said Neeraj Gambhir, Group Executive for Treasury, Markets, and Wholesale Banking Products at Axis Bank Ltd. He noted an increase in hedging inquiries as currency volatility surged.
Companies purchased $48 billion in forward cover in December, the highest for 2024, according to data from the Clearing Corp. of India. This spike in demand pushed up hedging costs by over a percentage point last month.
IndiGo, in response to the rupee’s volatility, is exploring options to extend its hedging beyond the current 12-month period. The airline is currently covering up to 70% of its forex exposure for up to a year, according to its Chief Financial Officer, Gaurav Negi.
