Most Indian corporates protected against weakening rupee: Moody's

A sustained weakening of the Indian rupee against the dollar will be credit negative for rated Indian companies that generate revenue in rupees, but rely heavily on US-dollar debt to fund operations and thus have significant dollar-based costs, according to a new report from Moody's Investors Service. Indian rupee has been sliding since mid-March.

On April 27, 2021, the Indian rupee closed around 74.66 against the US dollar, or about 3 per cent lower than levels in mid-March.

India is reporting new record daily increases in coronavirus infections, prompting new lockdowns and restrictive measures to curb the spread of the pandemic. This has, in turn, raised concerns about the country's economic recovery and currency fluctuations.

"Most companies have protections to limit the effect of currency fluctuations. These include natural hedges, where companies generate revenue in US dollars or have contracts priced in US dollars; some US dollar revenue and financial hedges; or a combination of these factors to help limit the strain on cash flow and leverage, even under a more severe deprecation scenario," says Annalisa Di Chiara, a Moody's senior vice president, in the report.

"As a result, weaker credit metrics under a scenario in which the rupee depreciates a further 15 per cent against the dollar can be accommodated within the companies' current rating levels. Refinancing risk associated with US-dollar debt over the next 18 months also appears manageable, as most companies are repeat issuers and others are government-owned or linked entities with good access to capital markets," the report said.

Moody's report looks at 22 rated India-based companies across various sectors.

ALCHEMPro News Desk (RKS)