Light hedging leaves Indian importers vulnerable to U.S. tariffs fallout

By Nimesh Vora

MUMBAI, Aug 26 (Reuters) - With punitive U.S. tariffs about to take effect on Wednesday, most Indian companies remain light on hedges, data from a clearing house shows, increasing their exposure to rupee fluctuations.

Indian importers booked $21.8 billion of forward dollar/rupee contracts between August 1 and August 21, CCIL data shows.

That tally, averaging $2.6 billion a day, is the lowest pace of this fiscal year which begins in April and compares with a $3.3 billion daily average, heightening the exposure of Indian importers to currency volatility.

While seasonal factors typically weigh on August activity, the subdued hedging activity stands out considering that U.S. President Donald Trump flagged the prospect of steeper India tariffs in the first week of the month, two analysts said.

The muted hedging reflected hopes the tariff dispute would be resolved or at least delayed. A Nomura survey last week showed nearly half of the respondents saw less than a 40% chance of new levies, though the bank warned risks were higher.

With tariffs now set to take effect, that optimism looked misplaced, FX advisors said, leaving importers more exposed to a weaker, more volatile rupee.

"We were advising importers to secure at least two months of hedges," Kunal Kurani, vice president at FX risk management f Mecklai Financial, said.

"From a risk perspective, it made sense to lock in rates rather than wait, protecting margins against a potential rupee slide."

EXPORTERS

For exporters too, hedging activity was lower in August, driven by the uncertainty over U.S. orders and the broader outlook on the rupee.

An official at a seafood company, who did not want to be named since he is not authorised to speak to the media, said the firm was currently limiting hedges to confirmed orders amid doubts over how U.S. buyers will respond if new tariffs take effect.

Previously, it routinely hedged against anticipated demand, before the spectre of U.S. duties clouded the outlook.

Meanwhile, diamond exporter Hari Krishna Exports was limiting hedges betting on the potential for tariffs to weaken the rupee and the view that the currency was unlikely to strengthen much anyway.

"It made sense to stay slightly more exposed," said Abhijeet Bhushan, CFO at Hari Krishna Exports.

The Indian rupee INR=INR dropped to 87.80 per dollar on Tuesday, nearing the all-time low of 87.95 and marking its weakest level in three weeks.