Corporate profits for the three months to September, 2011, have been badly bruised by the sharp depreciation of the rupee, since many companies had unhedged exposures to external commercial borrowings. Forex losses could continue to hurt: Last week, the rupee lost 2.4% to the greenback, slipping the most in eight weeks as corporates rushed to buy dollars even as supply remained weak with foreign institutional investors taking risk off the table.

At 51.34 to the dollar, the Indian currency has been a huge underperformer this year compared to its regional peers. However, that?s inevitable because as forex expert AV Rajwade points out, almost all other economies run a current account surplus whereas India runs runs a current account deficit. ?Given that capital flows have been weak, there could be further downward pressure on the rupee,? Rajwade says.

Indeed, the move by several corporates to switch to dollar borrowings given higher interest rates in the local market appears to have backfired because positions have been left uncovered.

Meanwhile, oil marketing companies have been particularly hit by the weak rupee in the September 2011 quarter, but losses at other companies too have been fairly high at R591 crore for Ranbaxy, R466 crore for Sterlite and R485 crore for Shree Renuka Sugars, according to a report from Kotak Institutional Equities.

Says Ajay Seth, CFO Maruti Suzuki, ?The falling rupee is a major cause for concern not just for Maruti but for the entire automobile industry. Our sense is that the fall would continue for another two months and we have hedged against short-term volatility.? Seth points out that the it?s been a bit of a double whammy for Maruti because the yen has been fairly volatile too.

Koushik Chatterjee, group chief financial officer, Tata Steel believes it?s the currency?s volatility that took corporates by surprise. ?More than the absolute level, it?s the abrupt movements that have hurt. Had there had been a greater element of predictability, we would have taken measures to protect ourselves,? says Chatterjee.

Forex expert Jamal Mecklai believes the Reserve Bank of India may want to intervene in currency markets and in time, trim the cash reserve ratio (CRR) to free up some liquidity. However, as Mecklai points out, a fair amount of the recent weakness in the local currency has resulted from corporates not having covered their imports adequately and waited too long. Rajwade believes the central bank may not wish to step into the currency markets as it might not want to mop up too much liquidity from the market just yet.

In any case, companies will need to be far more watchful of their foreign currency exposures.

?The depreciation can affect the power sector adversely on fuel imports given that the cost of imported fuel is already a pain point for us. As far as Tata Power is concerned, our earnings are mainly in rupees and we have a very balanced exposure to foreign currency load,? said a spokesperson for the company.

While companies that need to pay up immediately have little choice but to buy their requirements of dollars at the current price, CFOs are hopeful the currency will stabilise. Prabal Banerjee,CFO, Adani Power believes the rupee could move back to levels of 46-48 and not weaken as indicated by forward premiums. That?s, provided the eurozone crisis doesn?t worsen and the macro-environment at home doesn?t deteriorate.

Treasury heads at banks say companies waited it out in the belief that the central bank would come to their rescue. The RBI for its part, has been intervening in the currency markets, but only to a very small extent. On Friday, the central bank is understood to have sold around $250 million. Deputy governor Subir Gokarn defended the central bank?s non-interventionist stance last week saying it may not be wise to use the reserves to defend the currency since they were not the outcome of persistent current account surpluses, unlike in many countries, particularly in the region. ?So, the use of reserves to defend an exchange rate, which may not be defensible beyond a point, means we end up with the same pressures and with a lower set of defences against it,? Gokarn observed in an interview to a TV channel.

Mecklai believes since $ has been exceptionally strong, it?s possible that the greenback could reverse slightly against the euro.