Rupee woes to burn a deep hole in India Inc's pockets

Moneycontrol Bureau

India Inc is likely to be severely impacted by the rupee's depreciation against the dollar given the large foreign currency debt on books and partial hedging, says Crisil Research.

The research firm expects the currency's fall to lift input costs across sectors amidst weak demand environment as reflected in low double-digit topline growth expected in 2013-14. It says even exporters are unlikely to benefit significantly as clients may seek to renegotiate contracts.

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Mark-to-market losses and higher debt servicing costs are likely to be key pressure points in the near term.

Mukesh Agarwal, president, CRISIL Research says: "For companies in the CNX Nifty (excluding banking and financial services), around 40 per cent of debt is denominated in foreign currency. In total, corporate India had forex debt outstanding of over USD 200 billion as of March 2013, of which close to 45 per cent is short-term debt. Moreover, only half their forex exposure is hedged. Persistent weakness in the rupee and heightened volatility has reduced the benefits of borrowing overseas."

From the growth and profitability perspective, sectors that will be negatively impacted by the rupee's depreciation include automobiles, auto components, airlines, consumer durables, oil marketing companies (OMCs), and fertilisers.