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Re's Sudden Fall may Push Cos to Hedge Currency





The sudden fall in the Indian rupee has woken up many corporates to the ground realities of the currency market. After six months of stability, complacency had set in. Indian corporates, after remaining unhedged, may now start covering their currency exposure.

Some companies tend to stay away from hedging as its cost eats into the net receivables.

"Sustained RBI purchases of dollars, uncertain geopolitics and the prospects of early withdrawal of the monetary accommodation in the US do appear as risks to the rupee," said Ananth Narayan, regional head of financial markets, South Asia, Standard Chartered Bank. "In such a context, Indian importers would be well advised to seek option protection as insurance against any shock moves in the local currency ."

Between May 22 and August 14, the Indian rupee dropped about 4% to close at 60.77 per US dollar on August 14 from 58.46 on May 22. It had risen 5.60% till May 22 since the beginning of the year. Strong Reserve Bank of India intervention in mopping up dollar inflows has prevented the rupee's significant appreciation, as any sharp rise in the local unit would hurt exporters.

According to the latest data, the central bank has bought a net $2.4 billion collective ly in May and June compared with $2.3 bil lion sold in the year-earlier period when the rupee was falling against the greenback. In the last few weeks, the dollar has been strengthening as investors seek the safety of the US currency on the back of tensions in Iraq, Ukraine and Gaza that could also hurt crude oil prices.

Moreover, improving economic fundamen tals in the US are attracting investors with their eye on a possible interest rate increase. This too has helped in arresting the rupee's rise.

"Despite all, the local unit has clearly out performed when compared with other cur rencies like in Brazil, Russia or Korea," said NS Venkatesh, executive director at IDBI Bank. "Both exporters and importers should hedge their currency exposures as and when they get the right opportunity at a reasonable price.Chances of rupee appreciation are higher than its depreciation."

The one-year forward rupee-dollar forward rate is currently quoting at about 8.20% or a premium of about ` . 4.90 over the spot market. In the current perspective, it looks attractive for exporters to take positions at these levels with the expectation of more overseas inflows in the coming days. However, it's still a bit expensive for importers, who may be considering their options, dealers said.

"Volatility is likely to increase in the domestic currency market," said Pramit Brahmbhatt, CEO, Veracity Financial Services. "While foreign inflows are likely to increase further in 2014-15, external factors may strengthen the dollar against other currencies."

According to Narayan, going forward, domestic factors look much more favourable than 12 months ago.

Foreign exchange reserves have improved significantly by about $4 billion to $319 billion on August 8 since May 16 this year. The prospects for a growth revival look good given the positive indicators and that the government is looking to boost the economy.

"Given improved India fundamentals and steep forward premia, exporters continue to see merit in increasing hedge ratios, despite lack of rupee appreciation," Narayan said.

NSEL chief held in 5,600cr mkt fraud

Mumbai: The economic offences wing (EOW) of the Mumbai police, which is probing the Rs 5,600 crore cheating case involving the National Stock Exchange (NSEL), on Wednesday arrested Jignesh Shah, chairman of the Financial Technologies (FTIL) group, and MCX CEO Sreekanth Javalgekar for their alleged role in the biggest payment default in the Indian commodity market.      With the two fresh arrests, the number of people behind bars has gone up to 11. Shah was initially summoned by the EOW at 3pm for questioning and allowed to go. However, he was again called at 6pm and placed under arrest. He and Javalgekar have been kept at the Mumbai crime branch's lock-up in the police commissionerate compound near Crawford Market, and will be produced before a special court on Thursday.  EXCHANGE CRISIS  July 31, 2013 | Jignesh Shah-led NSEL suspends trading after govt nudge on faulty contracts  Who was to pay 5,600cr | 21 commodity suppliers/planters  Who was to get it | 13,000 investors, mostly HNIs IN THE NET  Shah, Javalgekar  knew about  fraud, says EOW  Mumbai: Rajvardhan Sinha, additional commissioner of police (EOW) who has been supervising the NSEL fraud probe, said, "The EOW has arrested Shah and Javalgekar and they are being interrogated. Earlier, we arrested certain borrowers and middlemen like Sanjeev Bhasin, Rajesh Mehta of Lotus group and Indrajit Namdhari of Namdhari Food International. During Javalgekar's interrogation, it transpired that as group financial manager of FTIL, he was in full control of the Indian Bullion Merchants Association (IBMA, in which FTIL has a major stake) and NSEL for a long time. We found that he was in criminal conspiracy with other accused in the NSEL crisis."      Sinha added that it was found that IBMA had a large chunk of bogus clients whose addresses and other details could not be traced, leading to suspicion that black money and other unaccounted funds were flowing into the exchange circuit. He said that Shah, head of FTIL, director of NSEL and a member of the NSEL audit committee, had approved the entry of all borrowers as members of the exchange.      "He also approved several contracts. Shah personally represented to the government the scheme of NSEL, which was nothing but a platform for running a non-banking financial company. It was found that their (Javalgekar and Shah) defence claiming ignorance of this fraud is incorrect," said Sinha.      Shah was earlier questioned and summoned at least 16 times by the EOW. "However, he could not give satisfactory replies. The accused also evaded crucial replies and hence their custodial interrogation was felt necessary," added Sinha. "Till today we have secured properties and assets of the accused worth Rs 5,100 crore."      Shah and Javalgekar are also accused of using their clients' bank accounts without their knowledge. Sinha said that the probe was still open about the role of brokers and auditors. In December 2013, the EOW had attached properties, frozen shares and sealed a bungalow and a row house belonging to Shah. They were collectively valued at Rs 192 crore.      Police had seized 1.2 lakh shares of Shah that were in FTIL. The estimated value of these shares was around Rs 179 crore. Besides this, police also sealed Shah's Juhu  bungalow, a row house at Aarey Colony (worth Rs 78 lakh), a plot in Pune worth Rs 1.6 crore, shares worth Rs 51 lakh in India Energy Exchange, and FDs worth Rs 11.8 crore in a private bank. Five demat accounts were also frozen. Shah earned Rs 160 crore by way of dividend from FTIL, police said.      The police in January chargesheeted five persons including Anjani Sinha, NSEL's former managing director; Amit Mukherjee, exassistant vice-president of business development at NSEL; Jai Bahukhandi, exassistant vice-president of warehousing at NSEL; Nilesh Patel, MD of N K Proteins Ltd; and Arun Kumar Sharma, MD of Lotus Refineries Pvt Ltd. Later, the police arrested Surendra Gupta, MD of Dunar Food, Indrajit Namdhari of Namdhari Food International Limited, Rajesh Mehta of Lotus and Sanjeev Bhasin.      Till date, the EOW has frozen 322 bank accounts holding Rs 171 crore, attached over 210 properties worth Rs 2,600 crore and seized 15 high-end cars worth Rs 5.8 crore.

SC: CAG can audit pvt firms in revenue-share deals with govt Telecom Verdict May Affect Other Sectors Like Coal Mining, Gas

New Delhi: In a path-breaking judgment, the Supreme Court on Thursday ruled that the Comptroller and Auditor General (CAG) can audit account books of private companies which are doing business using national wealth or natural resources on a revenue-sharing basis with the Centre. 

    Though the judgment has a direct bearing on telecom service providers doing business using spectrum on a revenue-sharing basis, it will also have a vital impact on private firms engaged in natural gas extraction and coal mining as these sectors too operate on the basis of variants of revenue-sharing models, mostly termed as production-sharing contracts. "When nation's wealth, like spectrum, is being dealt with either by the Union, state or its instrumentalities or even the private parties, like service providers, they are accountable to the people and to Parliament. Parliamentary democracy also envisages the accountability of the council of ministers to the legislature," said a bench of Justices K S Radhakrishnan and Vikramjit Sen. 
    The verdict comes at a time when the SC is dealing with the 2G spectrum scam, coal block allocation irregularities and also hearing arguments on MP Gurudas Dasgupta's petition alleging that Reliance and the Union petroleum ministry were hand-in-glove to give RIL 'windfall profit' causing consequent loss to exchequer.SC: Govt is sometimes hand in glove with licence providers 
    The bench said such audit by CAG was important when the Executive dealt with natural resources, like spectrum, which actually belonged to the people of India.Writing a judgment that paves the way for CAG to audit private telecom companies, Justice Radhakrishnan said the Supreme Court was of the firm belief that CAG must audit the accounts of private firms because "instances are not rare where even the Executive, at times, acts hand in glove with license providers, who deal with the natural resources, hence, necessity of parliamentary control over the resources." 
    Dismissing petitions by Association of Unified Tele Services Providers and Cellular Operators Association of India, the bench said: "CAG's examination of the accounts of service providers in a revenue sharing contract is extremely important to ascertain whether there is an unlawful gain to the service provider and an unlawful loss to the Union of India, because the revenue generated out of that has to be credited to the Consolidated Fund of India." 
    "Parliament should know how the nation's wealth has been dealt with by the Executive and even by the UAS License holders and the quantum of revenue generated out of the use of the spectrum and whether the same has been properly assessed, collected and accounted for by the Union and the license holders," the bench said. 
    The court rejected the telecom service providers' argument that CAG could not be given unhindered access to the account books and could look into only those relating to revenue sharing. "We are of the view that unless the underlying records which are in the exclusive custody of the service providers are examined, it would not be possible to ascertain whether the Union of India, as per the agreement, has received its full and complete share of revenue, by way of licence fee and spectrum charges," the bench said.