The rupee plummeted to a record low of 54.51 against the US dollar on Wednesday, raising questions on whether companies unprepared for this would take a currency risk hit that would affect their profits.
The currency breached its previous record low of 54.30 to the dollar on December 15, 2011, as global risk aversion intensified after Greece announced plans to hold fresh elections in June.
Companies will have to suffer mark-to-market losses on the borrowings they made through ECB (external commercial borrowings) and FCCB (foreign currency convertible bond) routes.
Jagannadham Thunuguntla, head of research at SMC Global Securities said Indian companies had raised as much as $30 billion (Rs 150,000 crore) through ECBs in 2011 and faced extra repayment burdens. "Such additional burden works out to be around Rs 35, 640 crore," he said.
Experts have been left guessing if the rupee is headed for a free fall.
“I do not think rupee will have a free fall,” said Abraham Chako, executive director at the private sector Federal Bank. “RBI will not let the rupee fall up to 60 levels,” he said.
Since March, the rupee has been the worst performing emerging market currency in Asia and has shed 9% since then. “You have to let the rupee slide to its natural level but we not want too much volatility, it’s not good for anybody,” said Shikha Sharma, managing director, Axis Bank.Indian companies used to borrow earlier in the ECB market at an interest rate of 5 to 7% in foreign currency loans while rupee-denominated loans were available at 12 to 14%. "Companies that would have not hedged their exposure may have tough times going forward," said Thunuguntla.