Does Hedging is Needed to Foreign Exchange Risk Confronted by Chemical Industry of India

Chemical industry is one among the augmenting sector in manufacturing of India. It is budding at the rate of 13% p.a and contributing 2.11% to GDP. 100% FDI is permitted to chemical industry. Total FDI into chemical industry was about 109 Billion for the span of 2000 to 2015. Contribution to total chemical industry by its sub segments are Bulk chemicals contributes 39% Agro chemical constitutes 20.3%, specialty chemicals 19%, balance is from petro chemicals. Agro chemical industry imports a large volume (MT'S) of Urea, NPK & DAP from foreign countries preferably china & Saudi but there invoices are majorly denominated in USD. Other chemical industry also imports from the advantageous sources which can afford competitive prices but it is denominated majorly in USD. Volatility of exchange rate erodes the profits of the firm. At this point in time, The author has made an effort, to examine the exchange exposure and its impact on exchange losses emerging in chemical industry. This is being analyzed through data gathered from annual reports and summarized for meaning full analysis. ANOVA and predictive analysis (multiple regression test) is used for analysis. Models have been developed to estimate the exchange losses and choice of derivative. The study also reveals major currencies involved in the international operations and kind of currency derivative used for hedging the foreign exchange losses.