June 21 (The following statement was released by the rating agency)
Companies in the chemicals, fertiliser and paper industries will be the most negatively
affected by sustained depreciation of the Indian rupee, Fitch Ratings says. Exporters such as
pharmaceutical and technology companies may gain some benefit from the currency's move, but this
is likely to be less than in the past.
The effect of the rupee depreciation on importers will depend on several
factors, including whether they are able to pass on higher import prices via the
import parity price (IPP) practices common in certain industries.
Chemical, fertiliser and paper companies, along with cement producers that do
not have adequate domestic coal links, tend to import a lot of their raw
materials. They also tend not to benefit from IPP arrangements and will have
limited opportunity to pass on higher costs because of subdued demand.
Oil and gas companies and metal producers are more likely to benefit from IPP
practices or to also have significant exports that help offset the rising cost
of imported raw materials. Companies in the auto ancillary sector also typically
have contracts to pass on higher costs to original equipment manufacturers, but
may be forced to absorb some of the price increases due to falling end-user
For exporters such as pharmaceutical, technology, textile and mining companies,
the beneficial effects on operating margins and leverage are likely to be weaker
than during previous periods of depreciation. This is due to lower global
demand, aggressive price renegotiations, hedged foreign-currency exposure and
the additional cost of servicing foreign-currency debt.
The rupee has fallen around 10% against the dollar since the start of May and
its decline has accelerated recently amid increased concern about the eventual
withdrawal of quantitative easing in the US.