Indian corporates with inadequate foreign-exchange hedging could face rating pressure if the rupee weakens sharply, global credit rating agency Fitch Ratings cautioned in a new commentary released on Thursday. The agency said that companies in sectors with limited natural hedges remain the most vulnerable to currency swings, ANI reported.
Fitch noted that “in sectors with significant vulnerability to rupee depreciation, we anticipate that a hypothetical failure by issuers to substantially mitigate foreign-exchange (FX) risks through hedging could put downward pressure on ratings.” While most rated firms either hedge actively or have natural protection through local-currency revenues, a few sectors continue to face heightened sensitivity.
According to Fitch, renewables, power utilities and toll-road operators carry the greatest risk because they lack strong natural hedges and rely more heavily on foreign-currency debt. Many companies have hedged a sizable portion of their exposure, keeping risks manageable. However, where hedging is partial — especially on principal repayments — a sharp rupee fall could lift hedging costs and strain debt-coverage ratios.
The agency said a rupee depreciation of over 10% against the US dollar in the next 6–12 months could significantly increase hedging costs. Even in such a scenario, issuers are expected to continue hedging, but failure to do so “could negatively affect credit profiles.”
“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,” Fitch added.
Fitch also highlighted that several other large sectors — including building materials, technology, pharmaceuticals and automobiles — remain better insulated due to export earnings or overseas business operations that act as natural FX hedges.
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