With the rupee depreciating by about 9% since June this year and more sharply in the last two months, it has caused a great deal of concern among foreign institutional investors as their already poor returns from the Indian markets have worsened further. The weak inflow of dollars from foreign institutional investors has pushed up the demand for dollars by Indian companies.

A recent report by Crisil shows the repayment pressures on corporate India has increased due to sharp weakening of the rupee. The share of commercial borrowings in the country?s total debt stock has gone up to 28.9% in March 2011 as compared with 19.7% in March 2005. Indian companies account for nearly 90% of the $88 billion repayment due in 2011-12. So, due to the downside in global growth, Indian companies fear a credit freeze in developed countries, which will affect their ability to raise money from the debt market or roll it over.

Indian companies that import a large amount of raw material in sectors like infrastructure, petroleum, auto and cement would be vulnerable to rupee depreciation. On the other hand, the software sector, which is one of the biggest exporters, would benefit from the rupee?s depreciation and so would sectors like metals and fast moving consumer goods (FMCG). Indian companies with large unhedged forex borrowings would get hurt by the fall in the rupee. A report by Emkay, a Mumbai-based brokerage house, shows that the impact of the fall in the rupee on corporate earnings for FY12 would be in the range of plus 7% to minus 6%.

Going ahead, Kotak Economic Research forecasts that the rupee could be poised for more near-term depreciation if the Reserve Bank of India does not intervene. ?While in the near term there appears a risk of the rupee breaching the 50-mark against the dollar, from a more medium-term perspective we should see the rupee settle in a range of 46-49 unless there is an absolute meltdown in the global markets,? writers Indranil Pan, chief economist, Kotak Mahindra Bank.