The sharp depreciation in the rupee will take the sheen of corporate profit in the December quarter amid weakening domestic demand across sectors. This apart, companies with large overseas borrowings have to make additional provisions due to the sudden rise in liability.
The rupee continued to decline for the second straight session, falling 9 paise to settle at a fresh all-time low of 85.20 against the US dollar on Tuesday. On December 19, the rupee plunged to a record low against the dollar, breaching the 85 mark for the first time.
Madan Sabnavis, chief economist at Bank of Baroda, said that while most corporates hedge their overseas exposure, they keep a portion of the loan open to currency risk as hedging the entire exposure lead to higher costs.
Moreover, the rupee was almost stable in the last two years, even when the currency of other emerging countries was depreciating big time, providing corporates with big comfort to take the additional currency risk, he added.
The sudden rupee depreciation will also make RBI think harder on the expected rate cut, he said.
Sunil Subramaniam, CEO of independent think-tank Sense and Simplicity said rupee depreciation will have an impact on crude and edible oil imports and sectors such as aviation, paints, automobile, tyres and FMCG companies that make soap and sell edible oils.
On the other hand, sectors such as IT, textile and leather product exporters will benefit but it will be limited as the importers will renegotiate prices, he added.
CA Jashan Arora, Director, Master Trust Group said corporates with overseas debt face higher liabilities in rupee terms and must account for the increased value of foreign currency loans.
The recent US Federal Reserve Chair statement suggesting fewer rate cuts in 2025 will make US assets more attractive and depreciate the rupee further due to the reduced appeal of emerging markets, he said.
Ajay Garg, Director & CEO, SMC Global Securities said the rupee hitting all-time lows every day is certainly a big problem that needs to be handled by the RBI.
While hedging can be a good way for companies to face rupee depreciation, creating a separate provision can put additional pressure on their profits which recorded muted earnings in the second quarter of FY25, he added.
Aamir Makda, Commodity & Currency Analyst, Choice Broking said companies’ profitability will be impacted as they have to make provisions for rupee depreciation in their financial statements and push up their borrowing cost.
The falling rupee will impact capital investments in infrastructure sectors such as solar and wind energy, which heavily rely on imported components, he added.
