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Tamil Nadu exporters ride on soaring dollar, sliding rupee
With the Indian rupee plummeting to new lows every day, TN exporters have something to cheer about. Be it auto components, IT, leather or textiles, the currency slide has brought windfall gains for those in exports, which contributes 40 per cent of the net leather exports of India.
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Chennai
Experts believe that while the gains may appear to be huge, this is just a temporary phenomenon. The exporters fraternity has benefitted marginally. Apart from covering risks through forward contracts, the aspect of 40 to 45 per cent component of imports that is part of the exported items must also be factored in.
Rafeeque Ahmed, Former Chairman, Council for Leather Exports (CLE), says, “In such a scenario, the benefit is almost neutralised. Having a stable currency should be the way forward.”
His sentiments are echoed by Ravi Sehgal, Chairman, Engineering Export Promotion Council (EEPC), who says, “When every other nation is on the same footing, extra advantages do not accrue for one nation. The key lies in improving the domestic efficiency levels so that the cost of production is brought down. Conversely, the dollar appreciation is also making the raw material for exports expensive.”
But for auto component players, the going has been good with marquee vendors expressing happiness on the back of shining dollar bringing cheer to the exporters. Most other sectors have had to renegotiate their contracts following the slide in the rupee.
But as S Seetharaman, Executive Chairman, Super Auto Forge, says, “Auto component overseas buyers prefer maintaining the status quo when it comes to contracts, given the possibility of exporters hiking up the prices.”
Businesses that are transacted in dollars (the IT and apparel sectors) would have made a substantial gain of 7 to 8 per cent. Those raising funds from the Indian market can rest assured as investments typically pour in with a one-year timeline.
Senthil Natarajan, CEO, OpenTap, a city-based fintech start-up, says, “Similarly, venture funds are doled out keeping in mind, the longer haul. The rupee is not an exception considering that almost every currency has been hit by global macroeconomic conditions.”
Those who have just raised funds, especially in dollars or about to close a fund, are in the positive sphere. Vikram Gupta, Founder, IvyCap Ventures, says, “Venture capital money is drawn over time and the exchange rate matters only at the time of withdrawal. Those who have drawn down their tranche of capital in the last two to three months, would be gaining 6 to 7 per cent only due to exchange rate fluctuations.
Citing the example of Flipkart, whose shareholders got richer right from the transaction stage, Gupta says those who are exiting at this time or selling their portfolio in rupee and returning in dollar will suffer a huge hit. Those who have sold their business abroad but valuations are in rupee terms will find it tough as the conversion into dollar will diminish the valuation.”
Arun Natarajan, MD, Venture Intelligence, says for portfolio companies, it is a neutral impact unless in the case of cross-border transactions. However, for funds, it is a problematic scenario when exits have been posing a challenge, with valuations being wiped out by the adverse movement of rupee against the dollar. Returns look healthy but returning good multiples in dollar terms must be seen in the context of an unhedged private equity or venture capital industry.
“Having said that, this one or two-month phenomena do not affect,” he says. Those who are in the process of raising capital in dollar will be impacted. The current slide augurs well for those intending to raise money from domestic market. Forex doesn’t matter and as such investors or funds are encouraged and enthused to tap the domestic potential.
Export highlights
Textiles
- Total textile and clothing exports stood at US$ 37.74 billion in the year 2017-18.
- Ready-made garments (RMG) exports from India stood at US$ 16.65 billion in FY2017-18.
- Total exports of textiles and apparel are expected to touch US$ 82 billion by 2021 with CAGR of 12.06 per cent.
Leather
- Total leather good exports from India stood at US$ 1.36 billion during 2017-18.
- During 2017-18, the major markets for Indian leather products were US (24.48 per cent), Germany (14.76 per cent), UK (10.94 per cent), Italy (5.82 per cent), Spain (5.87 per cent), France (5.07 per cent), Netherlands (4.86 per cent), Australia (3.41 per cent), UAE (3.10 per cent) and Denmark (2.59 per cent).
- In 2017-18, leather footwear component, leather garments and finished leather exports stood at US$ 340 million, US$ 519 million and US$ 874 million respectively.
- As per ACMA forecasts, automobile component exports from India are expected to reach US$ 70-billion by 2026 from US$ 10.9 billion in FY17. The Indian auto component industry aims to achieve US$ 200 billion in revenues by 2026.
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