Foreign exchange derivatives contracts, which a large number of Indian companies entered into in 2007 and 2008, have taken a heavy toll on India Incs financials during 2008-09. However, the impact went unnoticed because of some crucial changes in accounting norms last year allowing these losses to be kept off the profit & loss statement.
A report by Edelweiss Capital calculated that in BSE 100 companies which comprise the 100 most valued firms in India the total foreign exchange-related loss for the year was a whopping Rs 43,000 crore.
Of this number, mark-to-market (MTM) losses, which mainly relates to forex derivatives contracts, aggregated Rs 24,300 crore. The numbers were arrived at from individual disclosures by these companies in their annual reports, Edelweiss analysts said. These losses could be in multiples if one considers all the listed and unlisted companies in India which had bought forex exchange derivatives from a clutch of banks during 2007 and 2008.
The main reason for such huge losses was depreciation of the Indian rupee against US dollar during 2008-09. Edelweiss now expects that the appreciating rupee will lead to paring of these MTM losses for India companies. For every 10% appreciation of the rupee, aggregate MTM gains during the current financial year (FY10), for the BSE 100 companies, will be about Rs 12,200 crore, it said.
However, there is widespread expectation that based on the recovery in the US, the dollar is going to appreciate against most currencies, including the rupee. In case it does, these Indian companies could again stare at further MTM losses rather than gains as expected by the broking house, market players said.