Most Rated Indian Companies Can Withstand A Weaker Rupee: Moody's

Most rated companies in India can withstand a weaker rupee, although external factors like rising interest rates in developed economies and higher energy prices would increase currency volatility, Moody's Investors Service said on Tuesday.

In a commentary on non-financial companies in India, Moody's said on November 25, the Indian rupee touched 81.67 versus the U.S. dollar, after depreciating almost 10% since the beginning of the year.

A steady rise in interest rates in developed economies combined with higher energy prices has resulted in a widening current account deficit, pressuring the rupee. "Although these external factors increase currency volatility, most rated companies in India have buffers to withstand the rupee's depreciation," Moody's said.

The weakening rupee is credit negative for Indian companies that generate revenue in the domestic currency but depend on U.S. dollar debt to fund their operations. A weaker rupee will also hurt companies with dollar-denominated costs but rupee-based revenues.

"However, we expect the negative credit implications for rated companies to be limited or temporary," it said.

Most rated companies have protections to limit the effect of currency fluctuations. These include natural hedges, some U.S. dollar revenue and financial hedges, or a combination of these factors, which help limit the adverse effects on cash flow and leverage, even under a more severe deprecation scenario.