The picture is more diverse in the building materials and construction sectors. Commodity and natural resource firms, for example, have products whose prices are broadly linked to global commodity prices in US dollars.Rated companies in the technology (mostly IT services), pharmaceutical, automotive and chemical sectors also generally benefit from export revenues or overseas operations that provide a natural hedge against FX risks.
Singapore/Mumbai/Hong Kong: International rating agency Fitch Ratings said most Indian corporates in renewables, power utility and toll road sectors generally earn revenues in local currency and lack natural hedges, making them more vulnerable to rupee depreciation
Some companies in these industries have fully or substantially hedged their foreign-currency debt coupon and principal obligations, either via hedging instruments or through maintaining foreign-currency borrowings at less than 20% of consolidated debt. Rupee depreciation is unlikely to influence these companies’ ratings.
“A sharp depreciation of the rupee, of more than 10% against the US dollar over the next 6-12 months, could lead to a material increase in hedging costs and impact issuer debt and interest coverage ratios. We believe companies with FX vulnerabilities would continue to substantially hedge US dollar exposures under such a scenario, but any failure to do so could put downward pressure on ratings,”said Fitch.
Other issuers in these sectors are only partially hedged, for example with some or all principal repayments being exposed beyond certain levels of exchange-rate movement – although coupon payments are generally fully hedged across issuers.
“Even for these issuers, we do not expect a significant ratings impact if the rupee is marginally weaker than under our rating case, which currently sees the currency at INR87:USD1 by end-2026, from around INR90:USD1 as of 9 December.” added Fitch.
This is largely due to structural protections against FX risk exposures, such as parent-company guarantees, interest coverage via intra-company loans, earmarked liquidity for FX outflows and cash-trap mechanisms.
The picture is more diverse in the building materials and construction sectors. Commodity and natural resource firms, for example, have products whose prices are broadly linked to global commodity prices in US dollars.Rated companies in the technology (mostly IT services), pharmaceutical, automotive and chemical sectors also generally benefit from export revenues or overseas operations that provide a natural hedge against FX risks.