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Textile THMB Rising rupee against Euro may hit textile firms

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SME Times News Bureau | 15 Apr, 2010
Rupee's impressive rise above 11 percent against the European Euro in 2010, could possibly eat away at the profits of several textile firms, and further reduce India's already dwindling trade with the European Union (EU).
 
The rupee has risen against Euro in 2010, amidst growing assumption that Greece could fail to pay up its sovereign debt. Rupee, which was quoted against Euro in December 2009 at 66.61, ended at 59.26 on April 9, 2010.

Rupee, that's partly convertible, ended at 44.28/29 per dollar, off an intra-day peak of 44.23, highest since September 8, 2008, and 0.4 percent stronger than Thursday, April 8, 2010, closing of 44.46/47.

Irrespective of the country, the client belongs to; the transaction is carried out in US dollars. Thus this affected euros’ drop against dollar by 6.6 percent in 2010. This will also affect the textile industries but it would only have a nominal impact.

However, this impact could also be as good as negligible for the larger textile companies as of the total exports of the Indian textile industry, the overseas sales to Europe accounts to only 10 – 15 percent, even though most of the payment is done in US dollar. The smaller companies could possibly feel the heat as they do not have access to foreign currency derivatives.

Although the effect could be smaller, but there is a strong viewpoint that Europe's ongoing crisis could affect India's resurgence of overseas sales. EU accounts for almost, 20 percent of India's total export earnings and 14 percent of the total imports payments.

During April – July 2009 quarter, exports to EU declined by 32.4 percent as compared to 46.2 percent growth during the same period, the previous year. The unpredictable nature of Euro against major currencies, has given a boost to the Euro-rupee futures on the stock exchange, with a sharp rise in April.
 
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