Some of the analysts have lately been talking about the loses that India inc. will take on its books this quarter due to huge MTM losses on their derivative positions. This, they claim, will cause a drop in reported earnings for majority of the companies for the first time in many quarters. While the logic seems to be fine there is one problem that I foresee. As pointed out by Andy Mukherjee in his article the Indian accounting rules are not yet clear on the MTM side so its not clear how many companies will actually end up reporting the true picture of their losses.
According to Jamal Mecklai, chief executive officer of Mumbai-based risk- management consulting firm Mecklai Financial, this month that Indian companies may have as much as $5 billion in marked-to- market losses on their currency positions.
Even so, as Mecklai noted in an interview posted on the Web site moneycontrol.com, Indian accounting norms don't require companies to mark these positions to market.
That means that bets that have turned unprofitable because of the U.S. currency's recent slide -- to a record against the euro last week and to a 12-year low against the Japanese yen -- may remain hidden from scrutiny until the contracts mature and the losses are realized.
This gives rise to a separate conspiracy theory. If the company intends not to disclose its losses this quarter (and I can give umpteen numbers of reasons for them not wanting to do that) then maybe they won't take their banks to court for the fear of disclosing how much they are slated to loose over bets they took on cross currency derivatives. There may be many who had no business taking these positions in the first place and who will now be more concerned about disclosure than loss.
