Rupee Drops To New Record Low As Moody’s Flags Concerns For India Inc.
Sustained weakening of the rupee is credit negative for Indian companies, said rating agency Moody’s.
The Indian rupee slumped to a fresh record low of 72.18 by falling 45 paise against the US dollar on strong demand for the U.S. currency from importers as the greenback strengthened against other currencies overseas on upbeat jobs data.
The local currency opened at record low of 72.15 a dollar from its previous close of 71.73. It had breached its previous record low of 72.11 hit on Sept. 6 today.
Forex dealers said besides strong demand for the American currency, buying by importers, mainly oil refiners in view of surging crude oil prices and capital outflows, weighed on the domestic currency. Besides, the dollar strength against its rival currencies overseas amid fears of a possible escalation in the U.S.-China trade conflict too put pressure on the rupee, they said.
‘Credit Negative For India Inc.’
Sustained weakening of the rupee is credit negative for Indian companies which generate revenue in rupees but rely on U.S. dollar debt to fund their operations, Moody's Investors Service said Monday.
The Indian rupee has depreciated nearly 12 percent so far in 2018 and has touched a historic low of Rs 72.32 to a dollar. The rupee on Friday staged a turnaround to close higher by 26 paise at 71.73 after heavy intervention by the Reserve Bank of India.
“Nevertheless, most rated India-based corporates have protections in place -- including natural hedges, some U.S. dollar revenues and financial hedges -- to limit the negative credit implications of a potential further 10 percent weakening of the rupee to the dollar, Moody’s Vice President and Senior Credit Officer Annalisa DiChiara said in a note.
Of the 24 Moody's-rated India-based corporates across the high-yield and investment grade categories, 12 generate most of their revenue in U.S. dollars or have contracts priced in U.S. dollars, providing a natural hedge, and thus limiting the effect a weakening in the rupee could have on their cash flows, it said.
These 24 corporates include those in the IT, oil and gas, chemicals, automobiles, commodities, steel, and real estate development sectors.