Bankers and financial advisors are urging Indian companies to reassess their forex risk strategies, warning that the period of low volatility for the Indian rupee may be ending with Donald Trump’s anticipated return to the U.S. presidency. With the rupee hitting a record low of 84.3625 against the dollar on Thursday, experts advise companies to actively manage their currency exposure amid a surging dollar and heightened economic uncertainty.
Investors are flocking to the dollar on expectations that Trump’s policies—such as tax cuts, deregulation, and possible tariffs on imports from Asia—will boost U.S. growth. This has already caused major Asian currencies to weaken, putting increased pressure on the rupee. “The rupee is likely to enter a period of somewhat increased volatility with the risk of larger moves in coming months,” HDFC Bank’s Chief Economist Abheek Barua noted, cautioning that this will require a shift in how Indian companies approach forex risk management.
For companies accustomed to a stable rupee, this shift could require new strategies, as recent volatility in the rupee has been far below historical averages. With the rupee’s 3-month daily realized volatility at only 1-2.5% this year, companies have been hedging less, waiting until closer to payment dates. However, with increased volatility on the horizon, this approach may no longer be sustainable.
Experts are advising companies to hedge their foreign exchange risk for the next three to six months. HDFC Bank recommends prudent hedging practices, and IFA Global’s CEO Abhishek Goenka suggests a mix of options and forward contracts for importers to navigate this uncertain period.
