Trump’s US election win prompts calls for Indian firms to be cautious on forex risks

By Nimesh Vora and Jaspreet Kalra

MUMBAI (Reuters) – The period of low volatility that the Indian rupee has enjoyed may not last now that Donald Trump is poised to become U.S. president once again, bankers and advisors cautioned, urging companies to manage their forex risks more prudently and proactively.

The rupee dropped to an all-time low of 84.3625 to the U.S. dollar on Thursday, adding to the previous day’s losses when the election outcome prompted Asian currencies to plunge.

Investors are dumping Asian currencies, and the dollar is rallying against its major peers on bets that Trump’s expected policies of lower corporate tax and deregulation would boost U.S. growth.

In addition, Asian currencies are having to contend with the possibility of Trump raising tariffs, especially on China.

All of this is likely to mean a period of higher uncertainty and volatility for Asian currencies, said bankers, adding that the usually muted Indian rupee will not be immune to the disruptions that Trump’s policies are likely to lead to.

The rupee is “likely to enter a period of somewhat increased volatility with the risk of larger moves over the coming months,” Abheek Barua, chief economist at HDFC Bank said in a note.

For Indian companies, used to the rupee in a narrow range for extended periods, this will mean an adjustment to the way they manage their foreign exchange risks.

The rupee’s 3-month daily realized volatility this year has been in a 1%-2.5% range, way below the 10-year annual average of 5%.

Due to rupee’s low volatility, Indian importers have been keeping a relatively low hedge ratio and “were more inclined to wait” till near to the date of payment, a forex salesperson at a mid-sized bank said.

“That may no more be feasible now that the perceived risk has moved,” he said.

Companies should be prudent and hedge their near-term risks (for the next 3-6 months), HDFC Bank recommended.

Abhishek Goenka, founder and CEO of forex advisory firm IFA Global, said importers can opt for option hedges vis-à-vis forward hedges, depending on their risk profile.

“For the extremely conservative ones, we are suggesting that if you have confirmed payments to be made, then can consider a combination of options and forwards.”

This post is originally published on INVESTING.

  • Related Posts

    Russia’s claim of emissions in annexed Ukraine regions draws protests at COP29

    By Valerie Volcovici BAKU, Azerbaijan (Reuters) – Russia has included the territories it occupies in Ukraine in its recent greenhouse gas inventory report to the United Nations, drawing protests from…

    Oil prices settle up 1% at 2-week high as Ukraine war intensifies

    By Scott DiSavino (Reuters) -Oil prices climbed about 1% to a two-week high on Friday as the intensifying war in Ukraine this week boosted the market’s geopolitical risk premium. Brent…

    Leave a Reply

    Your email address will not be published. Required fields are marked *

    You Missed

    Russia’s claim of emissions in annexed Ukraine regions draws protests at COP29

    • November 23, 2024
    Russia’s claim of emissions in annexed Ukraine regions draws protests at COP29

    Weekly Brief: My Forex Funds Negotiating with CFTC?, Bitcoin Nears $100K, and More

    • November 23, 2024
    Weekly Brief: My Forex Funds Negotiating with CFTC?, Bitcoin Nears $100K, and More

    Oil prices settle up 1% at 2-week high as Ukraine war intensifies

    • November 22, 2024
    Oil prices settle up 1% at 2-week high as Ukraine war intensifies

    COP29 climate summit overruns as $250 billion draft deal stalls

    • November 22, 2024
    COP29 climate summit overruns as $250 billion draft deal stalls

    SEC Fines Webull, Two Broker-Dealers for Compliance Failures

    • November 22, 2024
    SEC Fines Webull, Two Broker-Dealers for Compliance Failures

    SEC Fines Webull, Two Brokers-Dealers for Compliance Failures

    • November 22, 2024
    SEC Fines Webull, Two Brokers-Dealers for Compliance Failures