Currency Exposure of Equity Returns: Evidence from India.

The paper studies the meager evidence on currency exposure of Indian companies. It addresses three research questions. What is the long-term currency exposure (FX Equity Beta) of listed firms in India? Does it show cross-sectional variation in firms and variation across industries? Is it time varying? With NSE 100 firms, currency exposure of equity returns to US Dollar (USD) is estimated at portfolio and firm levels for the period 2001-2016, and also for two sub-periods 2001-2008 and 2008-2016. Robustness of the estimates is verified using Composite Exchange Rate (CER). Long-term FX Equity Beta of Indian firms is negative and time varying, and varies across industries and firms. This evidence is contrary to the thinking that currency depreciation is good for emerging economies. The forex beta of the equity portfolio of NSE 100 firms to USD (CER) is -1.352 (-1.352), for 2001-2016; -1.718 (-1.704) for 2001-2008, and -1.283 (-1.256) for 2008-2016. Mean firm level FX Equity Beta on USD (CER) is -1.601 (-1.551) for 2001-2016; -2.078 (-1.875) for 2001-2008, and -1.667 (-1.803) for 2008-2016. Mean FX Equity Beta on USD (CER) of financial services firms is -2.221 (-2.215) and that of IT firms is -0.47 (-0.56). [ABSTRACT FROM AUTHOR]