Which big companies will be most affected by rupee’s rise?

Which big companies will be most affected by rupee’s rise?

Mumbai: The rise of the rupee to a nine-year high against the US dollar has hit exporters hard. The information technology sector has been the worst affected, as is apparent from the pummelling that IT stocks have received despite a rising market.

A Mint analysis of listed companies with net sales of more than Rs1,000 crore has identified those companies that will be the most impacted by the rising rupee, on the basis of having the highest proportion of net exports (exports minus imports) to their sales for 2006-07.

As expected, as many as five of the Top 10 companies are from the IT sector, namely HCL Technologies Ltd, MphasiS Ltd, Infosys Technologies Ltd, Tata Consultancy Services Ltd and Wipro Ltd; Dr Reddy’s Laboratories Ltd is from the pharmaceuticals sector; Hindustan Zinc Ltd is from the metals space, while hotel company Indian Hotels Co. Ltd and textiles company Rajasthan Spinning and Weaving Mills Ltd make up the rest.

Of the top 25 companies, as many as eight are from the IT sector.

Net exports are adjusted for expenses incurred in foreign currencies, which is why some of the IT companies show a lower percentage as net exports, even though most of their sales are in foreign currency terms.

Conversely, companies that have high net import revenue as a proportion of their net sales will be the ones that will benefit the most from an appreciation in the value of the rupee.

This list comprises mainly fertilizer and oil companies, such as Coromandel Fertilisers Ltd and Indian Oil Corp. Ltd, whose pricing is dependent upon the government.

Investors seem well aware of the impact of the rupee appreciation, which is why the prices of most of the stocks of affected firms have fallen between 18 September (the day the Fed cut rates) and now.

Among the Top 10 worst affected companies, the stock prices of six of them have gone down in spite of a rising market. The only stock that has gone up substantially is Hindustan Zinc and there, the story is that rising lead prices may more than make up for the rupee effect.

On the other hand, while most of the stocks that have high import revenues have gained, not all have outperformed the broad market.

Fertilizer stocks had already moved higher on the government announcing the release of Rs7,500 crore worth of fertilizer bonds and it’s unlikely the rupee appreciation had anything to do with the rise.

But oil marketing companies such as Hindustan Petroleum Corp. Ltd and Bharat Petroleum Corp. Ltd have moved up on expectations of a fuel price increase.