Indian companies book large losses on their rupee hedges

Corporate India's fiscal 2009 results show that local companies have lost hundreds of millions of dollars from bad currency hedges - and in some instances this has wiped out their entire profit.

India's growing exports of services and, to a lesser extent, goods resulted in total export revenues of $155 billion in fiscal 2008, up 23% from the previous year. Exports earn foreign currency while expenses are in rupees, so companies resort to foreign exchange hedging to reduce the effect of FX volatility.

It becomes important for the exporter to protect his margin at the time he recognises his revenue or...