A falling rupee is expected to dent the earnings of many Indian companies for the current April-June quarter because of rising import costs or foreign exchange that must be shown in their account books.
"The April- June quarter is usually a sluggish period for the companies and the depreciation in the value of rupee will further adversely impact the corporate earnings because of rising import costs," said Sunil Jain, head of equity research at brokerage firm Nirmal Bang.
"The companies that have high foreign currency debt will see their mark-to-market losses going up due to the depreciation in rupee," said Jain.Since April, the rupee has been the worst performing emerging market currency in Asia and has shed 10% since. It fell to an all-time low of 55.47 per US dollar in intraday trade on Tuesday and closed at Rs.55.39.
Companies with high foreign currency debt and high import will get hit most while companies with low foreign currency debt and high export earnings will gain from the rupee depreciation.
The indebted firms will have to suffer mark-to-market losses on ECBs (external commercial borrowings) and FCCBs (foreign currency convertible bonds) as debt-servicing charges go up.
Power companies that are heavily dependent on imported coal and capital goods companies that buy overseas equipment and airlines importing fuel will see their costs up.
"Companies the in oil and gas, aviation, capital goods, power will see their operating costs rise because of rupee depreciation," said Dipen Shah, head, fundamental research, Kotak Securities.