Mumbai: Gokaldas Exports Ltd, India’s biggest garment exporter, says the rupee’s slide to a record low helped to win orders from rivals in China, where the yuan gained against the dollar in the past year.
The yuan’s stability and the rupee’s drop is an advantage for every local exporter to get more business, Rajendra Hinduja, managing director of the Bangalore-based company, said in an interview. “We are now competing and winning.”
Gokaldas, which makes GAP sweatshirts and Nike tracksuits, and Sarju International Ltd, a producer of Reebok sportswear, say they are becoming more competitive after India’s currency fell 20% in the past year to 50.195 per dollar, while the yuan rose 2.4%. The rupee was the worst performer after the South Korean won among Asia’s 10 most active currencies in the past 12 months as economic growth slowed and the global credit crisis prompted funds to sell emerging-market assets.
The rupee will weaken another 5.3% to 53 per dollar this year, according to the median estimate of seven exporters surveyed by Bloomberg last week. The Reserve Bank of India may favour a weaker currency to bolster Asia’s third biggest economy, said Richard Yetsenga, a Hong Kong-based strategist at HSBC Holdings Plc., who forecasts a steeper rupee decline to 54.
Boom time: Exporters such as Bangalore-based Gokaldas Exports say they are becoming more competitive after the rupee fell 20% in the past year to 50.195 per dollar, while the yuan rose 2.4%. Jagadeesh NV / Mint
“The central bank won’t mind an orderly movement in the currency, even if it means a weaker rupee,” Yetsenga said. “They will allow exporters to take that advantage.”
India’s $1.2 trillion economy grew at a 5.3% annual rate in the three months ended 31 December, the slowest pace since 2003. India’s goods exports, which account for about 20% of gross domestic product, tumbled 22% in February from a year earlier, the most since at least 1995, a commerce ministry report showed on 1 April. China’s slid 26%, according to Chinese customs data.
Fuda Worldwide Sdn, a Malaysian company that imports printing machinery from China, is turning to Mumbai-based Deluxe Printing Machinery Co. for some parts to curb expenditures.
“Our costs have increased because of the yuan,” said Reimund Chong, Fuda’s Kuala Lumpur-based managing director. “We have either asked for discounts, or we have replaced some of the parts-sourcing in India.”
Sebastien Barbe, the Hong Kong-based head of emerging- market strategy at Calyon, the investment banking unit of France’s Credit Agricole SA, is more bullish on the rupee, predicting it will rise 9% in the coming year.
The median estimate of 25 analysts surveyed by Bloomberg predicts the currency will strengthen 0.2% to 50.10 this year.
The rupee rose 0.3% on Thursday to 50.04 per dollar.
“It would be over-optimistic for exporters to expect a further drop in the rupee,” Barbe said.
Non-deliverable forwards indicate the currency may fall. Traders are betting the rupee will weaken 3.5% in a year to 52.04, while the yuan may rise 1.1% to 6.7580 per dollar, the contracts show.
Forwards are agreements in which assets are bought and sold at current prices for future delivery. Non-deliverable contracts are used for currencies that aren’t freely convertible.
“China’s stronger currency reflects how it has managed to weather the global financial-markets storm though at the cost of its exports,” said A. Sakthivel, president of the Federation of Indian Export Organisations in New Delhi. “At present, an Indian exporter stands the best chance to outbid a regional rival.”
Gokaldas, controlled by New York-based Blackstone Group Lp., expects a further 5.3% drop in the rupee in 2009 to boost export revenue by 20% in the year ending 31 March, 2010, said Hinduja.
The company, a supplier for San Francisco-based GAP Inc. and Beaverton, Oregon-based Nike Inc., now exports 2.5 million garments a month and has sales of more than Rs1,000 crore ($200 million) annually.
Amit Goyal, managing director at Mumbai-based apparel exporter Sarju, predicts the rupee will end the year at 53 per dollar. Sarju, a supplier for Herzogenaurach, Germany-based Adidas AG’s Reebok International Ltd unit, shipped $40 million of goods to countries including the US, the UK, France and Russia in the year ended 30 June.
“We expect to be one up on rivals in China,” Goyal said. “A general recession in major partner countries has shrunk the market but we expect that to reverse in the third quarter.”
Sona Koyo Steering Systems Ltd, India’s biggest maker of steering wheels for passenger cars, has significantly increased its competitiveness because of the rupee’s decline, said chairman Surinder Kapur.
Shipments from New Delhi-based Sona Koyo, which supplies parts to Hyundai Motor Co. in Seoul and Toyota Motor Corp. in Toyota City, Japan, climbed 35% to Rs115 crore in the three months ended 31 December, from a year ago.
“The situation has turned for us,” said Kapur, who sees the rupee at 54 in a few months. “Our competitors in China and others in Asia will be pushed down.”
Judy Chen in Shanghai, David Yong in Singapore and Carmen Ng in Hong Kong contributed to this story.