The INR has appreciated ~8% against the USD since FY09 end and ~3% during Q2FY10. Companies with unhedged forex loans, derivative exposure to hedge exports/receivables and net imports, will benefit in terms of reduction in liability and MTM gains. However, the appreciation will negatively impact companies with net export earnings, as INR income of exporters will fall.
During FY08, lower coupon forex loans, coupled with 8% INR appreciation, significantly contributed to India Inc's bottom line as MTM and derivative gains were recorded in P&L. However during FY09, India Inc. was caught unguarded by steep INR depreciation (~28% vis-à-vis USD), which resulted in huge MTM losses on both unhedged loans and derivative contracts. Aggregate forex losses stood at INR 434.1 bn for BSE 100, of which, MTM loss on forex loans and outstanding forex derivative contracts (gross) was INR 243.9 bn and INR 99.3 bn, respectively, comprising 21.4% of reported PBT. However, revised accounting norms came to the rescue of these companies by allowing deferment of MTM losses, a significant portion of which has been reported off P&L.
On an aggregate basis, a further appreciation in the INR by 10% will result in MTM gains of INR 122.1 bn
