Rupee Volatility to Have Limited Credit Impact on Indian Firms: Crisil Report
Even though the Indian rupee has recently experienced volatility against the US dollar, Indian companies' overall credit profiles will continue to be stable, a report published by Crisil Ratings. The agency said that even though some industries can experience short-term pressure on their earnings with higher import costs, the long-term financial health of most firms would not be impacted.
Crisil pointed out that firms in most industries are adequately placed to counter the volatility of the rupee with a mix of subsidies, tactical pricing, and efficient hedging tools. Export industries, especially, gain from the weakening of the rupee, which boosts their competitive advantage worldwide and helps earnings.
Industries like IT, home textiles, and marine foods will witness profitability enhancements since they receive a large proportion of their revenue from exports and are less exposed to imports. This benefit could partly be transferred to customers based on market conditions.
At the same time, those industries with high import dependence or foreign currency liabilities, such as complicated fertilisers, oil and gas, and aviation, will likely cushion the blow through government help and strong hedging. Fertiliser manufacturers, for instance, are subsidised by the government, and more than half of the aviation industry's lease burdens are hedged already. Moreover, the prevailing support of global crude oil prices also provides additional cushioning to the oil and gas sector.
The report further cited that sectors related to capital goods, pharmaceutical, and renewable energies are likely to adjust easily with some of its segments profiting from its export-focused business practices. Some segments like chemicals, ceramics, gems and jewellery, city gas distribution, edible oils, and steel are likely to remain least impacted because of their natural hedges and pricing strengths.
Crisil concluded that while short-term earnings could fluctuate amid currency swings, companies are likely to adapt to the evolving exchange rate environment. "The overall credit impact is likely to be neutral as it will get neutralised over the medium term once businesses adapt to the new currency levels”, the report stated.
