Rupee depreciation to hit Indian firms badly

A note from CRISIL Research shows that only half of the foreign exchange exposure of Indian companies is hedged.

As on March 31, Indian companies had $200 billion of foreign currency debt and 45 per cent of this was short-term, a study by rating agency CRISIL shows.

Mukesh Agarwal, President, CRISIL Research, said a significant portion remained unprotected from the volatility in rupee exchange rate.

Since May 2013, Indian rupee depreciated around 11 per cent against the US dollar and this is said to be the worst performing currency in Asia. The weakening rupee increases the debt burden of companies that have raised foreign currency loans.

Companies which have unhedged foreign currency debt may be adversely affected by the persistent weakness in the rupee. The rupee weakness against the dollar reduced the benefits of borrowing overseas for these firms, the study shows.

The study shows that 40 per cent of debt held by blue-chip Nifty companies (excluding those in the banking and financial services space) is in foreign currency.

These companies, which borrowed from abroad to take advantage of lower interest rates, will have to bear the burden of increased interest payments, marked-to-market losses and payment for rollover of hedged positions on their loans, a report by the research division of rating agency CRISIL said.