The sharp rupee depreciation against dollar is expected to have a moderate impact on companies with the country's largest oil refining and marketing company, Indian Oil Corporation, facing the biggest challenge, said a Moody's report.
The currency's fall will increase the debt-servicing costs of companies with foreign currency debt, the risks for those holding large amounts of dollar-denominated debt are also manageable in the near term, given that debt maturities are limited for this time-frame.
By contrast, Indian exporters should benefit, as will companies able to produce substitutes for now-more-expensive imports, but their increased revenues will mitigate but not offset the wider costs of imported inflationary pressures on their input costs, it said.
The Moody's special comment on the impact of the declining rupee was released on Wednesday.
Energy imports
“Energy constitutes the largest portion of India's import bill, and IOC, together with the other unrated refining and marketing companies BPCL and HPCL, which import oil to supplement their small amounts of domestic production, have the most direct exposure to a weaker local currency,” said the report.
Since the beginning of 2011, the rupee has lost 15-20 per cent against all major currencies. The country's heavy dependence on energy imports and persistently high inflation provide limited headroom for import-dependent sectors to cope with higher import bills brought on by a weakened currency.
Tata Group
The rupee depreciation also affects the Tata Group's manufacturing companies with large foreign operations, although Tata Steel is the most vulnerable among these. For auto exports from Tata Motors, the firm's domestic base operations will benefit little because its underlying, dollar-linked raw materials of steel now cost more.