It's all about money, honey

<div class="section1"><div class="Normal">BANGALORE: As the rupee appreciates against the dollar especially, IT exporters have been hit not by the actual appreciation but by a boogey called Accounting Standard 11 (AS 11). As per AS 11, companies have to translate their foreign currency assets and liabilities into Indian rupees and report them in the profit and loss account as translation gains or losses.<br /><br />The system was working in exporters'' favour as long as the rupee was stable.The trouble started in the last couple of months when rupee has shown extremely volatile characteristics against dollar and appreciating from a high of 45.95 on November 25, 2003 to 44.07/8 on Tuesday. <br /><br />In fact, the last three days have seen smart rally by the rupee against dollar. Now, with the statutory requirement of translating adnustments to be made at the end of the financial year, companies are staring at substantial losses.<br /><br />Another grouse, IT firms are ruing about is on RBI''s forward hedging stipulations which requires firms to hedge only against receivables and to furnish documentation proof of all such recievables. The stipulation of hedging period of not more than six months is also being questioned.<br /><br />According to a report by JP Morgan, a one per cent change in rupee will have an impact in the range of 35 to 50 bps (100 bps is 1 per cent) on profits depending on the companies. From November 25 to March 29, rupee has appreciated by (just over) 4 per cent. So, going by JP Morgans'' formula companies will expect a 1.4 per cent to 2 per cent loss in their profit margins.<br /><br />The saving grace has been the Euro. Today, companies make it a point to bill in Euros for all European contracts. Hedging against Euro is also becoming popular.<br /><br />While JP Morgan''s outlook on rupee against dollar came true, though the Indian currency has moved up a lot more than what was predicted. In its report dated October 30, 2003 on Indian IT Services, JP Morgan had said the rupee would appreciate to Rs 44.55 per dollar by March before starting depreciating. In reality, rupee rose to 44.07 on Monday and is expected to further strengthen.<br /><br />The question is to what levels does the dollar slump? Again going by JP Morgan''s report - now that it has proved right the first time - the currency will drop to an estimated Rs 45.15 levels against the dollar by the end of fourth quarter of 2004.<br /><br /><formid=367815></formid=367815></div> </div>