COIMBATORE/CHENNAI: The rupee's fall against the dollar would offer gains in the short-term for export-oriented garment, information technology (IT) and leather indu stries. But they would be able to reap full benefits only if the trend sustains for a longer period, top industry officials and experts said.
"The depreciation (of the rupee) should sustain. Only then we would be able to get full benefits," said Raja M Shanmugham, president, Tirupur Exporters' Association. But the sudden fall in the rupee has resulted in most garment exporters in Tirupur, who typically book a lot of orders as 3-4 month packages, not taking forward covers at higher levels.
"It is not clear as to where the rupee would settle. So, we are in a wait and watch mode," said P Nataraj, managing director, KPR Mill. Most garment exporters take forward cover as a hedge against currency volatility. For instance, if the exporter believes that the rupee would fall, he/she would take a forward cover at a higher level as a hedge against potential losses.
As the rupee depreciates, short-term prospects are looking a little brighter for IT companies as well. "In the short run, they (IT firms) will see improvements in (profit) margins," said Shashi Bhushan, senior research analyst at brokerage house Prabhudas Lilladher. The Indian IT industry has been underperforming for the last few quarters due to weak demand from many of their large clients.
"Since India does not face significant competition from other countries when it comes to IT exports, we don't see any major impact to IT exports from a demand perspective," said Govind Agarwal, research analyst, Antique Stock Broking. "However, IT companies will see benefits in (profit) margins which will be used to increase investments in new market segments," he said
But that is not the case with labour intensive garment and leather industries which face stiff competition in the global market. The rupee's depreciation would enable leather and garment exporters to win more orders by quoting lower prices.
"We now have the ability to quote competitive prices and gain an advantage over competitors such as China and Bangladesh," said Naresh Bhasin, chairman, Ram Fashions, Mumbai. "We can quote cheaper (rates) and get more business," said Premal Udani, MD, Kaytee Corporation, a garment export house.
A 5% depreciation in the rupee against the dollar would help garment exporters improve profit margins by about 3%. Overseas buyers typically start quoting lower rates in dollar terms when there is a sharp depreciation in rupee.
The fall in rupee would however allow exporters to get better realisation for current bookings and future orders. "Exporters who are negotiating for new orders would stand to gain," Raja Shanmugham said. "The Chinese labour market is shifting towards hi-tech jobs, which further increases the chances for India," said Manoj Tuli, an exporter to Russia and the European Union.
The US president-elect Donald J Trump's decision to pull out of TPP (Trans Pacific Partnership) between the US and 11 countries has also come as a shot in the arm for exporters here. "The US decision to exit TPP would be a positive for the textile industry," Nataraj says.
Source: http://timesofindia.indiatimes.com/