Moody's Investors Service on Monday warned that a sustained weakening of the rupee would be credit negative for its rated Indian companies, particularly those that generate revenue in rupees but rely on US dollar debt to fund their operations and have significant dollar-based costs, including capital expenses.
"The Indian rupee hit a new low of Rs 72.1 to the US dollar on Thursday, and has now weakened around 13% since the beginning of 2018," Annalisa DiChiara, a Moody's Vice President and Senior Credit Officer said.
"Nevertheless, most rated Indian-based corporates have protections in place -- including natural hedges, some US dollar revenues and financial hedges -- to limit the negative credit implications of a potential further 10% weakening of the rupee to the US dollar from Thursday's rate," DiChiara said.
Moody's conclusions were contained in its just-released report, "Non-financial companies -- India: The fall in rupee has limited negative credit implications for rated Indian corporates". These 24 corporates include those in the IT, oil and gas, chemicals, automobiles, commodities, steel, and real estate development sectors.
"Furthermore, the impact of the rupee's weakening will be diverse and will also depend on issues such as a particular corporate's reliance on exports, its cost base, and its exposure to pricing on international markets," DiChiara said.
Moody's comments follow its annual survey of the US dollar debt exposures of South and Southeast Asian high-yield companies published in June 2018.
Seven rated oil and gas companies also fall under the "naturally hedged" category. Although they rely on foreign-currency debt, their earnings are linked to the US dollar because crude oil, natural gas, petroleum products and petrochemicals are all sold at US dollar-linked prices in India, providing a natural hedge to their US dollar-denominated borrowings, the rating agency said.