Credit rating agency Crisil expects the Indian rupee to strengthen to 45-46 against the dollar by March 2012, from the current lows of around 50, as it believes that developed economies will witness a slowdown, but they will avoid another recession.

?In our opinion, this will lead to a pickup in FII inflows towards early 2012 as the risk appetite for investment in emerging markets returns,? says a report released by the agency on Monday. Meanwhile, the vulnerability of Indian corporates, due to rising debt repayment pressures, will continue through the rest of the fiscal, says Crisil, adding that a shock to the system now arises from the rising downside risks in advanced countries and paring of their GDP growth.

The report states: ?In addition, Indian corporates fear a credit freeze in advanced nations, which could impair their ability to raise debt and/or roll it over.?

On the decline of rupee, the report says that in a worst-case scenario, a potential double dip in growth in advanced economies could have a sharper-than-expected impact on the Indian currency, causing it to slide further and prolonging its recovery. Standard & Poor?s (S&P) sees a 40% probability of another recession.

The report observes that the worsening global outlook, and the consequent risk-aversion to investment in emerging markets, has shrunk FII inflows into India, thereby reducing the supply of US dollars in the country. ?This along with rising repayment pressure on external debt held by the private corporate sector has raised demand for US dollars, necessitating the change in rupee outlook,? it points out.

Crisil says that in the last few years, foreign borrowings of Indian corporates have not only increased, but have also increasingly become short-term in nature. In fact, a large part of these borrowings are due for repayment in 2011-12.

?Indian corporates will continue to face repayment pressures, but we believe its impact on the rupee will be muted due an expected pickup in foreign inflows in early 2012,? Crisil observes, adding that repayment pressures on corporate India, rather than capital outflows, seem responsible for the sharp weakening of the rupee.

The sharp slide in the rupee also reflects greater tolerance of RBI for two way movement of the currency. The rating agency observes that the central bank?s intervention in the currency market has been minimal and restricted to containing volatility in exchange rate, rather than defending the rupee at a given level.