India Inc hedged only half of $200 billion forex debt: Crisil

Written by ENS Economic Bureau | Mumbai | Updated: Jul 11 2013, 19:39pm hrs
India Inc is likely to be severely impacted by the rupees depreciation against the dollar given the large foreign currency debt on the books and only partial hedging, Crisil Research said on Wednesday.

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. Only half of this forex exposure is hedged, the agency said. Moreover, the rupees depreciation will lift input costs across many sectors amidst weak demand environment as reflected in low double-digit topline growth expected in 2013-14, it added.

Even exporters are unlikely to benefit significantly as clients may seek to renegotiate contracts. We expect the rupee to strengthen from its current levels, but the 2013-14 average will still be 5-8 per cent weaker than the 2012-13 average. Mark-to-market losses and higher debt servicing costs are likely to be key pressure points in the near term, Crisil said.

Mukesh Agarwal, president, Crisil Research, said that for companies in the CNX Nifty (excluding banking and financial services), around 40 per cent of debt is denominated in foreign currency. Persistent weakness in the rupee and heightened volatility has reduced the benefits of borrowing overseas.

From the profitability perspective, sectors that will be negatively impacted by the rupees depreciation include automobiles, auto components, airlines, consumer durables, oil marketing companies, and fertilisers. The increase in fuel costs will hurt demand for automobiles, especially small cars, as fuel accounts for nearly 25-30 per cent of the ownership cost of a small car in the year of purchase, Crisil said.