Rupee slide to spell doom for India Inc
Mumbai: India Inc is expected to get severely impacted by the sharp depreciation in the rupee given the large foreign currency debt on its books and limited hedging.
According to CRISIL Research, the rupee’s depreciation will lift input costs across many sectors amidst a weak demand environment as reflected in low double-digit top line growth expected in 2013-14. Corporate India had forex debt outstanding of over $200 billion as of March 2013, of which close to 45 per cent is short-term debt.
Moreover, only half their forex exposure is hedged. “From the growth and profitability perspective, sectors that will be negatively impacted by the rupee’s depreciation include automobiles, auto components, airlines, consumer durables, oil marketing companies, and fertilisers,” CRISIL Research said in a report released on Wednesday.
According to it the increase in fuel costs will hurt the demand for automobiles, especially small cars, as fuel alone accounts for close to 25-30 per cent of the ownership cost of a small car in the year of purchase.
CRISIL further added that airlines with a high proportion of revenues accruing from domestic operations will also be hurt as 70 per cent of their operating costs are incurred in dollars, and their ability to pass on any cost increase is limited, given the sobering impact of price increases on demand.
“We don’t expect diesel prices to increase by more than Rs 1.50 per litre from the current level; so a weak rupee would increase under-recoveries of OMCs. We foresee under-recoveries touching Rs 1.05 lakh crore in 2013-14, 10 per cent higher than our previous estimate,” CRISIL noted.
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