The Indian rupee, which has been testing new lows for the last few days, crossed the 80 per dollar mark on Tuesday
Startups which have raised funds in foreign currencies will be hit by the depreciation in rupee and will need to hedge currency volatility risks, like software exporters
The rupee depreciation may also hit valuations of Indian startups, dislodging some of them from the elite unicorn club
The Indian rupee, which has been testing new lows for the last few days, crossed the key psychological barrier of 80 per dollar intra-day on Tuesday. “Startups can expect delays in raising investments due to higher diligence from investors and disagreements with respect to investment terms and valuations,” said Arvind Agarwal, co-founder and CEO of C4D Partners, an impact fund manager.But unlike software exporters, startups do not have the scale to engage in effective long-term hedging strategies. “They are better served by creating effective commercial terms and financial management – timing of payments, for example – to mitigate the impact and manage the risk,” Rikhye said.“As investors are being extra cautious with respect to valuations, the startups can expect lower revenue and multiple valuation offered by investors. This means the startups will have to walk the extra mile to achieve a billion-dollar valuation due to rupee depreciation,” said Agarwal of C4D Partners.Rupee depreciation can result in lower revenues and higher operational costs for many startups, impacting their margins. “These factors will negatively impact the price of new-age stocks and considering the recent global market developments, the worst is yet to come for them,” said Agarwal.Startups in the SaaS space are a case in example. “A falling rupee could lead to strong tailwinds for Indian SaaS companies building global products and further accelerate the growth of the sector,” said Rikhye.
The rupee has lost 7% value against the dollar so far in 2022 amid consistent fund outflows, according to Bloomberg. Highlighting the capital flight, Kotak Mahindra Asset Management Company, in a note said, “FIIs sold $6.4 Bn worth of Indian equities in June 2022 and $0.5 Bn in July 2022-to-date. With tenth straight month of selling, FII ownership of Indian equities is now near decadal low of 17.4%.”