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Commodity importers seek cover as rupee falls.

Date: 19-08-2019
Subject: Commodity importers seek cover as rupee falls
New Delhi: Importers of cooking oil, pulses and other commodities are increasingly hedging their rupee exposure as the local currency has weakened over the past week, increasing their cost. 

With the market being volatile and the rupee fluctuating on an average 40-50 paise a day to the dollarNSE -2.22 %, it is the right time to hedge currency exposure, said Anuj Gupta, the deputy VP of commodity & currency research at Angel Broking. “Companies use forward contract derivatives to hedge currency exchange risk, to mitigate losses incurred due to currency price fluctuations,” said Gupta. 

On the NSE, the dollar-rupee futures were trading at 71.20 for August delivery and at 70.50 for September on Friday. 

Gupta said that on the exchange, around 25 lakh contacts were being traded daily with open interest (OI) at around 35 lakh contracts. The OI measures the total level of activity in the futures market. In the near term, the rupee might trade in a range of 70.00-72.80, he said. 

Rushabh Maru, a research analyst for currency and commodity at Anand Rathi Shares & Stock Brokers, said given the state of the global and domestic economy, the rupee might gradually move towards 73 to the dollar. “There is a huge sell-off in domestic equities amid FIIs outflows. The RBI has been cutting interest rates. But it may not suffice to tackle the present slowdown in the domestic economy. Because of all these factors, importers will hedge their currency risk,” he said, adding: “On the other hand, exporters will not hedge their exposure at current levels and will wait for 72.50-73 levels.” 

India spends more than Rs 70,000 crore a year to import 15 million tonnes (MT) of its annual requirement of 25 MT of edible oil. Maru said edible oil importers would continue with their purchases to meet demand ahead of the festive season, irrespective of the rupee’s movement. 

Latest stocks data from solvent extractors reveal that around 19.95 lakh tonnes of imported edible stock is being held at ports and in the pipeline, which is equal to about 32 days’ requirement, he said. For pulses, overseas purchases may turn even more costly, further slowing down imports, said Maru. 

Atul Ganatra, the president of the Cotton Association of India, said with the rupee depreciating 3.5% in the past 15 days, import of cotton has become costlier by Rs 1,500 per candy of 356 kg each. “This will slow down import of cotton to India, but in the coming season (October-September), it will help exporters. We expect the rupee to touch 72.50 by September,” he said. 

Source: economictimes.indiatimes.com

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