Despite facing certain setbacks due to lockdowns because of COVID-19, the global semiconductor shortage and rising commodity prices, the Indian Auto Industry is looking at FY22 with optimism because of favourable government policies like the PLI scheme for the auto and auto component sector, the extension of FAME-2 scheme till FY24 which will further boost the adoption and manufacturing of hybrid and electric vehicles, the introduction of scrappage policy and a rise in the demand of automobiles in India. However, the rising commodity prices have driven up automobile prices while the persisting semiconductor shortage (which is not expected to ease before FY23) has extended waiting periods and has also contributed to the higher cost of ownership to buyers. Moreover, the auto industry is also wary of the further spread of COVID which may lead to lockdowns and may affect the production and supply of automobiles.
The Indian OEM Industry typically has long cycles where they get orders and fix rates for around one year and maybe even more. But the supply or the exports are a continuous process throughout the year with 60 to 120 days business cycles. Here the exports are primarily in USD and Eur. They generally get subvention on PCRE and choosing between PCFC and PCRE and managing the same is a challenge. They may have some smaller imports also mostly in USD primarily from China. But essentially they are net exporters. Sometimes they have some CAPEX imports also where the payments are of longer nature.
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This client in the Auto sector has in the last six quarters has been seeing gains and saving consistently even when the markets were volatile by using forex. His saving amounted to 1.85% per Dollar. ( 8.4 million ) This client has export exposure both in Euro and USD. We helped the client’s team to make money by identifying the correct instruments to use. There were times when the client was inclined to a particular hedging strategy basis their comfort zone. We worked with them to understand the available options, ran simulations to showcase future scenarios, and convinced them of certain strategies that were new but very useful for them. We brought in a discipline to hedge only at the right time specific to them -being identified regularly basis their contract dates and the financial market dynamics. We maintained close monitoring to review if the hedging advice was incorporated and immediate course corrections. A lot many nuances were discussed basis the contract type of our client and the prevailing market rates before we actually hedged. We also throughout the period advised them on rates and worked with them to develop strategies for bank negotiations. We also helped in actual negotiations.
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