Rupee depreciation remains a significant risk to India Inc

Fall in Indian Rupee against the US Dollar remains a significant concern to Corporate India, a ratings agency said. 

In a report, India Ratings said that depreciation of rupee remains a significant risk for corporate balance sheets, although it may not derail the economic recovery, it could impact their credit profile.

Depreciation of rupee has continued in the past two years, however the year 2016-17 was better compared to previous one. In the year 2015-16, Indian rupee depreciated by 7.16% and by 1.06% in 2016-17 .

India Ratings said that it expects rupee to fall 10% more if US Federal Reserve hikes rates by 50 basis points.

It said that if the rupee depreciates by 10% more, it will pose risk to top 100 corporate borrowers which are exposed to foreign exchange (FX) movements.

As of March 2016, total balance sheet of the top 100 borrowers stood at Rs 21.3 lakh crore – out of which total forex debt was at Rs 8.1 lakh crore.

India Rating's analysis indicates that 54 entities with Rs 10.10 lakh crore total debt will be highly sensitive to FX movement.

Till last fiscal (FY16), these corporate borrowers had Rs 19.5 lakh crore worth of forex exposure with Rs 12.4 lakh crore without any hedge.

India Ratings said, "After a survey carried with top borrowers it was known that 69 companies were importers and 31 were exporters. Among which a majority of the importers have 75% exposure to FX movement and also lie under the unhedged category, hence making them sensitive towards rupee depreciation.”

Sectors like oil & gas, metal & mining, airlines, chemicals & fertilisers, paper & products are among the heavy importers and Ind-Ra expects them to witness sharp deterioration in their credit profile if rupee depreciates.

Together these sector account 63% of Rs 13.5 lakh crore gross exposure unhedged as of FY16.