Stronger rupee does little to temper ECB appetite

Contrary to conventional wisdom, the hardening rupee against the dollar and other global currencies has done little to kill corporate India?s appetite for foreign funds. In fact, external commercial borrowings have gone up whenever the rupee gained against the dollar and fell when the domestic currency declined against the greenback this year.

Written by P Vinod Kumar

December 22, 2007 00:00 IST

Contrary to conventional wisdom, the hardening rupee against the dollar and other global currencies has done little to kill corporate India?s appetite for foreign funds. In fact, external commercial borrowings (ECBs) have gone up whenever the rupee gained against the dollar and fell when the domestic currency declined against the greenback this year.

Since the beginning of this fiscal to October, Indian companies raised close to $20 billion by way of ECBs through both automatic and approved routes. This is despite the rupee gaining a tad over 6% against the dollar.

Companies that raised funds abroad include blue chips like Eicher Motors, JSW Steel, Aditya Birla Nova Ltd and L&T. Interestingly, only a fraction of the funds raised through the ECB route has gone to fund overseas acquisitions. However, according to experts, with the hardening of interest rates in the domestic market, ECBs still seem to be attractive vis-?-vis domestic funds.

According to the Reserve Bank of India, between April and October, India Inc raised a total of $19.22 billion to fund its various requirements, mostly domestic capital expenditure. Notably, only a few companies tapped the international market for funds to finance their overseas buys.

In April this year, when the average value of the rupee was 42.15 to a dollar, total ECBs raised by Indian companies stood at $2.27 billion. In May, when the rupee gained close to 3.25% against the dollar, ECBs spiked by 50.86% to $3.43 billion. In June, ECBs dipped by 18% to $2.81 billion, when the rupee was trading flat against the dollar.

July again saw a spurt in ECBs by over 19% to $3.34 billion, while the rupee gained another 1% against the greenback. In August there was a sharp fall in external borrowings by companies to the extent of over 54% to $1.52 billion, whereas the rupee lost 1% against the US currency.

In September, however, there was a reversal of the trend with ECBs increasing 47% to $2.24 billion while the rupee gained a further 1.17% against the dollar. ECBs peaked in October to $3.60 billion, an increase of 61%, when the local currency gained over 2% against the greenback.

This article was first uploaded on December twenty-two, twenty seven, at zero minutes past twelve in the am.