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, according to a report by Moody's Investors Service.
Indian rupee opened at fresh record low
against the US dollar on Monday as concerns over rising crude oil prices and trade war tensions continued to hurt investor sentiment.
At 11:20 AM, the rupee was trading at 72.47 a dollar, down 37 paise, from its Friday’s close of 72.10. So far this year, the rupee has weakened 11.5 percent.
According to Moody's report, the fall in rupee has limited negative credit implications for rated 24 Indian corporates, which include those in the IT, oil and gas, chemicals, automobiles, commodities, steel, and real estate development sectors.
Of the 24 Moody's rated Indian-based corporates, 12 generate most of their revenue in US dollars or have contracts priced in US dollars, providing a natural hedge, and thus limiting the effect a weakening in the rupee could have on their cash flows, the report said.
"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," said Annalisa DiChiara, a Moody's vice president and senior credit officer, in the report.
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, which considered the effects of a weakening of the rupee to around 78 to the US dollar.
Seven of the Moody's-rated oil and gas companies also fall under the "naturally hedged" category as crude oil, natural gas, petroleum products and petrochemicals are all sold at US dollar-linked prices in India.
The seven companies include HPCL-Mittal Energy Limited, Bharat Petroleum Corporation Limited, Hindustan Petroleum Corporation Ltd, Indian Oil Corporation Ltd, Oil and Natural Gas Corporation Ltd, Oil India Limited and Reliance Industries Limited.