BackMost rated Indian companies can withstand a weaker rupee: Moody's
A steady rise in interest rates in developed economies combined with higher energy prices has resulted in a widening current account deficit, pressuring the rupee
PremiumMost rated companies in India can withstand a weaker rupee, though external factors like rising interest rates in developed economies and higher energy prices will increase currency volatility said Moody's Investors Service on Tuesday.
In a commentary on non-financial companies in India, Moody's on November 25 said that the Indian rupee touched 81.67 versus the US dollar, after depreciating almost 10 per cent since the beginning of the year.
A steady rise in interest rates in developed economies combined with higher energy prices has resulted in a widening current account deficit, pressuring the rupee.
"Although these external factors increase currency volatility, most rated companies in India have buffers to withstand the rupee's depreciation," Moody's said.
The weakening rupee is credit negative for Indian companies that generate revenue in the domestic currency but depend on US dollar debt to fund their operations. A weaker rupee will also hurt companies with dollar-denominated costs but rupee-based revenues.
"However, we expect the negative credit implications for rated companies to be limited or temporary," it said.
Most rated companies have protections to limit the effect of currency fluctuations. These include natural hedges, some US dollar revenue and financial hedges, or a combination of these factors, which help limit the adverse effects on cash flow and leverage, even under a more severe deprecation scenario.
Recently, Moody's Analytics said in its latest report 'APAC Outlook: A Coming Downshift' said that India is headed for slower growth next year more in line with its long-term potential. The rating agency said that inward investment and productivity gains in technology and agriculture could accelerate growth in the country.
Cash dollars demand may witness an upside this week on the back of month-end flows and expectations of a rise in the Indian rupee. On Tuesday, the Indian currency failed to take the advantage of broadly positive Asian cues and traded in a narrow range. The local unit closed slightly weaker against the US currency.
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