Had a very intersting afternoon yesterday hearing Mr Thiagrajan and sharing my views on Fx risk management as a CFO.
As Mr Thiagrajan showed a graph of USDINR rate from 1960 and spoke about the importance of merchant trade to GDP ratio I could help but notice that the three peaks of rupee depreciation (1960-1992) were in 1966, 1975 and 1992.
Would like to share the history of the USDINR here. At independence INR was measured against the £ and then converted to $. In 1947 we were at USDINR of ca. 3.3. Then we had two wars and that impacted trade, defence budget and domestic growth. So in 1966 we landed at USDINR at 7.50 a 2.3x adverse impact in 19 years.
The oil crisis of the 1970s and the domestic political instability took the USDINR to 8.10 by 1975 which is 1.08x adverse impact in 9 years.
In the early 1990s ca. 40% of government revenue was earmarked towards interest repayment and the fiscal deficit was ca. 8%. The genius of PM PV Narsimha Rao & FM Manmohan Singh came in and Indian economy moved away from licence Raj along with a rupee depreciation resulting in USDINR at 25.92 . It took guts to depreciate the rupee and it's that courage that has given us a today that we are celebrating.
In the last 30 years the rupee has depreciated at a CAGR of about 5% and in the more recent years as we gain more global credibility the rupee depreciation on an average has been lower.
As Mr. Thiagrajan said, history shows that sudden moves will happen and they are not abberations. These high probability events we MUST be prepared for and the hedging strategy should factor the same. On top of this, every company must look at it's business risks, it's exposure to commodities and then put a risk measurement in place.
The FX world seems more stable today but from Jan 22 to Nov 23 we saw a 12% depreciation. So when do events change and status quo we don't know. Preparation based on business risks, commodity exposure, gross FX exposure and internal capabilities is the best way to be fair to the business.
#foreignexchange #USDINR #corporatetreasury
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Venkatesh Bijoor Pankaj Chitlangia Sumanth Prabhu Saanvari Sheth Varun Ingole Alanis Dias Vivek Kumar Tanushree Bagrodia Kunal Sodhani Yeshwant Rao Shubhada Rao Yuvika Singhal
