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Managing The Rupee

Essay by   •  December 26, 2010  •  272 Words (2 Pages)  •  1,219 Views

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OVERVIEW:

The Rupee is appreciating strongly as against Dollar.

The Rupee has appreciated almost 7% in last 3 months and 10% since March 2006.

Will Rupee appreciate by less than 5% per annum from here or 8-10% per annum or more than that!

D.K. Joshi principal economist with Crisil predicts that Rupee will reach Rs.36-37 against a Dollar by 2010.

Sachidanand Shukla an economist with Enam Securities, sees the Dollar at Rs.37.8 by 2010

HSBC in one of its report, predicts Dollar at Rs.39 by end of this year.

What if the Rupee appreciates to Rs.35 a Dollar in the longer term?

Friegthining aspects:

Every 1 % Rise in the rupee against the dollar could wipe 30 to 50 basis points from the profitability of most IT companies.

Not just IT sector, but the countries entire $124.6 Billion export industry is worried.

Difficult to adjust the cost structures to cope with such a strong Rupee appreciation in such a shorter time.

Strategies:

Manufacturing operations shall be set up in US.

Example:

Bharat Forge acquired Federal Forge now renamed as Bharat Forge America.

Build or bought global manufacturing facilities or delivery centers in countries like China, Germany or Mexico where the currency has not appreciated as much against the dollar.

Exploring alternate sourcing and production locations based on economics of a country

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