Rupee Pain Means Exporters Gain as Indians Beat China

By Anoop Agrawal

April 9 (Bloomberg) -- Gokaldas Exports Ltd., India’s biggest garment exporter, says the rupee’s slide to a record low helped to win orders from rivals in China, where the yuan gained against the dollar in the past year.

“The yuan’s stability and the rupee’s drop is an advantage for every local exporter to get more business,” Rajendra Hinduja, managing director of the Bangalore-based company, said in an interview. “We are now competing and winning.”

Gokaldas, which makes Gap sweatshirts and Nike tracksuits, and Sarju International Ltd., a producer of Reebok sportswear, say they are becoming more competitive after India’s currency fell 20 percent in the past year to 49.89 per dollar, while the yuan rose 2.4 percent. The rupee was the worst performer after the South Korean won among Asia’s 10 most-active currencies in the past 12 months as economic growth slowed and the global credit crisis prompted funds to sell emerging-market assets.

The rupee will weaken another 5.9 percent to 53 per dollar this year, according to the median estimate of seven exporters surveyed by Bloomberg last week. The Reserve Bank of India may favor a weaker currency to bolster Asia’s third-biggest economy, said Richard Yetsenga, a Hong Kong-based strategist at HSBC Holdings Plc, who forecasts a steeper rupee decline to 54.

“The central bank won’t mind an orderly movement in the currency, even if it means a weaker rupee,” Yetsenga said. “They will allow exporters to take that advantage.”

Slower Growth

India’s $1.2 trillion economy grew at a 5.3 percent annual rate in the three months ended Dec. 31, the slowest pace since 2003. India’s goods exports, which account for about 20 percent of gross domestic product, tumbled 22 percent in February from a year earlier, the most since at least 1995, a Commerce Ministry report showed on April 1. China’s slid 26 percent, according to Chinese customs data.

Fuda Worldwide Sdn., a Malaysian company that imports printing machinery from China, is turning to Mumbai-based Deluxe Printing Machinery Co. for some parts to curb expenditures.

“Our costs have increased because of the yuan,” said Reimund Chong, Fuda’s Kuala Lumpur-based managing director. “We have either asked for discounts, or we have replaced some of the parts-sourcing in India.”

Sebastien Barbe, the Hong Kong-based head of emerging- market strategy at Calyon, the investment banking unit of France’s Credit Agricole SA, is more bullish on the rupee, predicting it will rise 8 percent in the coming year as a global economic recovery lures investors back to emerging markets. MSCI Inc.’s index for developing-nation equities climbed 29 percent in the past month.

‘Over-Optimistic’

The median estimate of 25 analysts surveyed by Bloomberg predicts the currency will strengthen 1.8 percent to 49 this year. The rupee rose 0.6 percent to 49.89 per dollar today.

“It would be over-optimistic for exporters to expect a further drop in the rupee,” Barbe said. “We expect risk appetite to increase because India is less vulnerable to global recession. India’s limited openness to global trade is limiting the pressure on the rupee.”

Non-deliverable forwards indicate the currency may fall. Traders are betting the rupee will weaken 2.9 percent in a year to 51.36, while the yuan may rise 1.4 percent to 6.7390 per dollar, the contracts show. Forwards are agreements in which assets are bought and sold at current prices for future delivery. Non-deliverable contracts are used for currencies that aren’t freely convertible.

‘Best Chance’

“China’s stronger currency reflects how it has managed to weather the global financial-markets storm though at the cost of its exports,” said A. Sakthivel, president of the Federation of Indian Export Organisations in New Delhi. “At present, an Indian exporter stands the best chance to outbid a regional rival.”

Gokaldas, controlled by New York-based Blackstone Group LP, expects a further 5.9 percent drop in the rupee in 2009 to boost export revenue by 20 percent in the year ending March 31, 2010, said Hinduja. The company, a supplier for San Francisco-based Gap Inc. and Beaverton, Oregon-based Nike Inc., now exports 2.5 million garments a month and has sales of more than 10 billion rupees ($200 million) annually.

Amit Goyal, managing director at Mumbai-based apparel exporter Sarju, predicts the rupee will end the year at 53 per dollar. Sarju, a supplier for Herzogenaurach, Germany-based Adidas AG’s Reebok International Ltd. unit, shipped $40 million of goods to countries including the U.S., U.K., France and Russia in the year ended June 30.

Turning Around

“We expect to be one up on rivals in China,” Goyal said. “A general recession in major partner countries has shrunk the market but we expect that to reverse in the third quarter.”

Sona Koyo Steering Systems Ltd., India’s biggest maker of steering wheels for passenger cars, has “significantly increased” its competitiveness because of the rupee’s decline, said Chairman Surinder Kapur.

Shipments from New Delhi-based Sona Koyo, which supplies parts to Hyundai Motor Co. in Seoul and Toyota Motor Corp. in Toyota City, Japan, climbed 35 percent to 1.15 billion rupees in the three months ended Dec. 31, from a year ago.

“The situation has turned for us,” said Kapur, who sees the rupee at 54 in a few months. “Our competitors in China and others in Asia will be pushed down.”

To contact the reporter on this story: Anoop Agrawal in Mumbai at aagrawal8@bloomberg.net