The Indian rupee has shed roughly 10% of its value against the US dollar over the past year, crossing the Rs 95 mark in early 2026. For corporate India, this isn’t just a headline—it’s a direct hit to the bottom line. Import-heavy companies are feeling the squeeze, and the response has been swift and strategic. From extending forex hedging horizons to accelerating localization and front-loading inventory, businesses are rewriting their playbooks to protect margins.
The traditional approach to forex hedging—covering exposure for just 2-3 months—is giving way to longer-term strategies. FSN E-Commerce Ventures (Nykaa) now maintains hedging coverage for the next 2-3 months at any point in time, up from shorter tenors. This extended horizon acts as a buffer against near-term currency swings, providing stability in an environment where the rupee has depreciated 4.5-5% since January 2026 alone. Transcripts
The logic is straightforward: currency volatility has spiked, and forward premiums have fallen from around 4% annually to roughly 2-2.5%. Lower hedging costs make longer tenors more attractive. For companies with significant import exposure, locking in rates for a longer period reduces the risk of adverse movements eating into margins. It’s a shift from tactical hedging to strategic risk management.
Hedging is a financial band-aid. Localization is the surgery. Companies are aggressively reducing import dependency to build structural resilience against a weaker rupee.
LG Electronics India has increased its localization rate from 45.1% in FY’22 to 54.6% in Q3 FY’26. This isn’t just about reducing import duties—it’s about mitigating currency risk. By sourcing more components domestically, LG reduces the proportion of its bill of materials exposed to forex fluctuations. The company is investing INR 5,000 crores in a new manufacturing facility in Sri City, Andhra Pradesh, to deepen this capability further. Transcripts +1
The lifestyle sector is following suit. Stanley Lifestyles has localized 30-33% of its leather sourcing and targets 70-80% within 18-24 months, estimating 20-25% cost savings at full localization. Arvind Fashions emphasizes that its sourcing remains “predominantly India-based, and we are deepening that further”. This domestic sourcing focus serves as a natural hedge, reducing exposure to imported raw materials subject to currency swings. Transcripts +2
The causal link is clear: sustained rupee depreciation makes domestic manufacturing economically more attractive. Every percentage point of currency weakness increases the relative cost advantage of local production, justifying investments in capacity and capabilities.
For some, the weakening rupee is an opportunity, not just a threat. Export-oriented companies see their revenues in foreign currencies convert to more rupees, automatically boosting margins when reported in INR terms.
Every 1% depreciation in the rupee typically translates to 30-40 basis points of operating margin improvement for large IT firms. This natural hedge is driving a strategic pivot toward exports. LG Electronics India, for instance, plans to double exports to $320 million in FY27 from $160 million in FY25-26. The company exports to 54 neighbouring countries and is expanding into premium markets like the US and Europe. Transcripts +2
The logic is compelling: export revenue in foreign currencies can offset import-related cost pressures in domestic operations. Companies with both export and import operations can use export earnings to naturally hedge import costs, reducing reliance on expensive financial instruments. As the rupee declined to Rs 95-96, the economic incentive to develop export revenue streams intensified, creating a structural shift toward more export-oriented business models.
When currency depreciation and geopolitical risks collide, inventory becomes a strategic asset. Companies are advancing purchases to lock in costs before further price increases.
Arvind Fashions management stated they “bought inventory slightly ahead of the curve for SS26, locking in costs before the increase”. The company “inwarded a lot of SS26 merchandise before March”, driven partly by geopolitical concerns related to Bangladesh shipments. This early procurement strategy secures inventory at pre-increase price levels, creating immediate margin protection when selling at current market prices. Transcripts +1
The urgency has been amplified by the Iran-Israel conflict, which has disrupted oil supplies and pushed Brent crude prices to multi-month highs above $100 per barrel. India imports over 85% of its crude oil, and around half of these imports transit through the Strait of Hormuz. The conflict creates supply uncertainty and accelerates cost inflation, forcing companies to secure inventory early to avoid last-minute purchases at premium prices.
Here’s the rub: despite multiple rounds of price increases, companies are struggling to fully pass on cost burdens. LG Electronics India implemented price hikes of 7-10% on air conditioners and 2-3% on washing machines and refrigerators. Yet, Q3 FY26 EBITDA margin declined to 4.8% from 7.7% in the same quarter last year, pressured by revenue softness, increased raw material costs, and FX volatility. Transcripts +3
The constraints are structural. Indian consumers remain price-sensitive, and weak market sentiment limits pricing power. Raymond Lifestyle consciously chose NOT to implement its usual 1-2% annual price increase in the branded textile segment due to weak market sentiment. When cost inflation driven by rupee depreciation and raw material prices exceeds the pricing power companies can exercise, margin compression becomes inevitable. Transcripts
The 4.5-5% rupee depreciation since January 2026 has directly increased landed costs of imported components. For companies with 30-50% import content, this translates to 1.35-2.5% direct cost increase before accounting for cascading effects. Price hikes of 7-13% are often insufficient to cover the full cost burden, forcing companies to rely on operational efficiency, strategic sourcing, and product mix optimization to protect margins.
The rupee’s slide to Rs 95-96 has forced Indian companies to adopt a multi-pronged approach to margin protection. Financial hedging provides near-term stability, localization builds structural resilience, exports create natural hedges, and advance inventory management locks in costs. Yet, pricing power constraints mean that cost pass-through remains incomplete.
For investors and managers alike, the message is clear: the era of assuming a stable rupee is over. Companies that proactively manage currency risk through a combination of financial instruments and operational strategies will be better positioned to navigate this new normal. Those that rely solely on price hikes to protect margins risk being left behind as the currency continues its descent.
