According to India Ratings and Research (Ind-Ra), Indian corporates might face higher borrowing cost in the overseas market in short-run due to the Greek debt crisis.
Although Indian companies have limited direct exposure to Greece, they may feel some pain in the short-term since a slew of them have been tapping international markets for cheaper funding relative to home country, it added.
Indian firms raised foreign capital of $13.4 billion in 2014-15 and cost of such borrowing may now go up. Ind-Ra expects increased global market volatility to weigh on the rupee in the near-term.
However, record-high forex reserves at $355 billion will provide a cushion against sharp volatility. "India's direct exposure to Greece through external trade is minuscule.
A contagion effect may lead to a 'risk off' scenario, increased volatility and capital flight. The biggest single-day debt outflow from the Indian market was $2 billion on September 17, 2008, post Lehman's collapse," it said.
Contagion risks, however, are restricted this time due to the low privately held and overseas debt in Greece, it said, adding that euro may weaken against the US dollar.
Indian rupee is likely to track the interplay between US dollar strength and commodity price fall. The impact of currency movements on India's current account will depend on the interplay between currency depreciation and decline in commodity prices, Ind-Ra said.
If currency depreciation exceeds the decline in commodity prices, the current account may worsen. This, along with a possible decline in pace of capital inflows, may affect currency, it added.