MUMBAI: Many Indian companies with sizeable forex loan exposure and no recourse to hedges could end up making

provisions in the first quarter ending June 30 as the rupee's slide eats into profitability. Power generating companies, cement makers and telecom companies are likely to be the main losers, although losses incurred on forex loans used for capital assets are allowed to be capitalised over a longer tenure. "There would be an impact. Many companies will have to take a write down," says Rakesh Arora, head of research at Macquarie Capital Securities. The biggest challenge before chief financial officers in 2013-14 would be to manage this forex exposure and insulate financials as much as possible. Indian companies believe that the weakness in the rupee is not a short-term phenomenon and is here to stay. "Indian rupee will remain on weaker ground. First, Indian inflation is about 7-8%, whereas US inflation is benign at around 1%. From 58.16 (to the dollar) level today, due to reaction from the government and RBI, there may be a short-term reversal, but in the long run, the rupee will gradually move south since the weak rupee will add to negative implication from cost of imports and will negatively affect current account deficit, weakening the rupee further," said Prabal Banerjee, president - international finance, Essar Group. What's more, Banerjee argues that the rupee depreciates even when there is a steady inflow of FII investments. "When the QE will be withdrawn by US, there will certainly be an impact on liquidity in US and we will see FII inflows into India gradually drying up. We will see the rupee weakening further in the medium term since we will have no control over this liquidity movement in US and global markets," Banerjee added. Banerjee doesn't mince words when he says that the rupee is trundling downhill. "Today India has much weaker economic parameters compared to couple of years ago. It naturally has its impact on current account deficit, export performance and growth rate, and they are not helping. Ultimately, all these issues impact exchange rate and unless drastic strategic reforms are undertaken to reverse this, the rupee will be sliding down and I see it touching 62-65 (to the dollar) by December end," Banerjee said. But there are silver linings in this cloud. "We will be fiercely competitive in global markets due to this depreciation, which will spurt export growth. Consequently, the rupee should rebound to a certain extent. But certainly, the rate of depreciation will be sharper than the rate of appreciation, and the overall trend would be a weakening rupee." Another overhead that would soar is hedging expenses, as companies hastily try and cover their exposure to the dollar. It is a Hobson's choice for Indian corporates. "Hedging is very expensive. If you hedge, the advantage of the dollar loan is gone," says Subba Rao, who's between jobs, and was till recently affiliated to a leading infrastructure conglomerate with interests in power generation and airports. Large companies do hedgetheir forex exposure. Companies in conglomerates such as Aditya Birla Group and Tata group hedge proactively as

they are conservative groups. "It is difficult to say, generalising will be difficult," says Arora. PSUs such as Power Finance Corp are also conservative in securing natural hedges. "Foreign currency borrowings account for only 6% of our total borrowing and part of it is hedged. Also, RBI does not require us to make provisions at one go, and has allowed us to make provision up to redemption. Therefore, we do not expect any major impact of the weak rupee," says Satnam Singh, chairman & managing director, Power Finance Corp. COMPANIES WITH HUGE OVERSEAS DEBT LIKELY TO FEEL THE HEAT A host of companies, especially infrastructure and metal firms, led by Reliance Communications BSE -6.35 % , Adani Power and Tata Power BSE -5.87 % , besides JSW Steel BSE 2.70 % and state-owned SAIL BSE -1.16 % , that have significant foreign currency borrowings will be hurt by an adverse movement of the rupee against the US dollar or other major currencies, reports Jwalit Vyas of ET Intelligence Group.