Crisil Ratings, one of India's top credit rating agencies, has issued a detailed report on the impact of rupee volatility on the earnings of various sectors in fiscal year 2026 (FY26). The agency estimates that earnings could drop by as much as 250 basis points (bps) for several industries if the rupee continues its erratic movement against the US dollar.

This projection comes amid rising concerns about geopolitical uncertainty, the global trade war led by tariff disputes, and growing fiscal pressure from developed economies, all of which are weighing heavily on emerging market currencies like the Indian rupee.

Rupee Trend and Crisil’s Outlook

The rupee saw sharp fluctuations in recent months. As per Crisil:

• On October 1, 2024, the rupee stood at ₹83.81 per dollar.

• It depreciated to ₹87.40 by February 28, 2025, before recovering to ₹85.65 by April 3, 2025.

• Over the past two years, the rupee had steadily depreciated by 1–2% annually.

• Crisil expects it to weaken further and stabilise around ₹88 by the end of FY26.

Despite the depreciation, the report suggests the credit profiles of most companies under Crisil’s coverage will likely remain neutral, as firms adapt to new currency levels over the medium term.

Sectors Expected to Be Worst Hit

A major concern raised in the report is for sectors that are heavily reliant on imported raw materials or whose input costs are dollar-denominated. These industries may face rising expenses without a proportional rise in revenue, directly impacting margins.

The most vulnerable sectors include:

• Airlines: Aircraft leasing, fuel, and maintenance costs are often dollar-linked.

• Oil and Gas (Refining & Marketing): Crude oil is traded globally in USD.

• Complex Fertilizers: Most of the raw materials are imported.

• Pharmaceuticals (APIs): Active Pharmaceutical Ingredients are mainly sourced from abroad.

• PVC Pipes and Fittings: Key components are imported or dollar-priced.

• Capital Goods: High reliance on imported parts and machinery.

• Renewable Energy: Equipment like solar panels and turbines are often procured globally.

In these sectors, even a slight depreciation in the rupee could significantly erode earnings.

Sectors That May Benefit

On the other hand, some export-heavy industries could gain from a weaker rupee, as their revenues in foreign currencies would convert into more rupees, improving margins.

Beneficiary sectors include:

• Information Technology (IT): Firms earn the bulk of their revenue in USD.

• Home Textiles: Products are largely exported to the US and EU.

• Marine Foods: Major chunk of revenue comes from exports.

These industries may see margin expansion if they manage to keep costs steady while benefiting from better currency conversion.

Sectors with Minimal Impact

Crisil also identified sectors where the rupee’s impact would be negligible due to natural hedging mechanisms or the ability to pass on costs to customers.

These sectors include:

• Pharma (Formulations): Export exposure is diversified.

• Chemicals: Margins are often protected through hedging or price adjustments.

• Primary Steel Manufacturers: Domestic demand offsets forex impact.

• Gems & Jewellery: Dollar-linked sourcing and sales provide a natural hedge.

• Ceramics and Edible Oils: Pricing adjustments are usually possible.

• City Gas Distribution: Regulated price adjustments help maintain margins.

Company-Level Impact and Mitigation Strategies

Crisil emphasized that the real effect of the rupee volatility on a company's credit profile will depend on factors like:

• Dollar debt exposure: Firms with unhedged foreign debt will see their liabilities inflate in rupee terms.

• Hedging practices: Companies with effective forex hedging can mitigate currency-related losses.

• Export vs import mix: Balanced companies may absorb shocks better.

• Pricing flexibility: Businesses that can transfer costs to consumers are less vulnerable.

While some firms may see higher mark-to-market (MTM) losses, most will adapt to new exchange rate levels, keeping credit risks largely contained.

The Macro View: Policy and Currency

The rupee's volatility comes at a time when India is caught in the crosshairs of the global trade war, largely triggered by the US-China tariff standoff. President Trump’s tariff policies and China's retaliatory measures are influencing capital flows into emerging markets like India, which in turn affects the rupee.

Moreover, India’s own economic factors, such as import-heavy sectors, oil price dependency, and foreign institutional investment (FII) flows, are compounding the pressure on the rupee.

The Reserve Bank of India (RBI) is expected to play a critical role in managing currency stability, possibly using forex reserves or adjusting interest rates based on inflationary trends.

According to Crisil, while rupee depreciation poses short-term earnings risks, especially for import-reliant sectors, the overall credit impact remains neutral. Most companies are expected to adjust their financial strategies, using hedging, cost management, or price revisions to navigate the rupee headwinds.

For investors, the key lies in watching sectors with direct USD exposure, understanding hedging policies of firms, and tracking the RBI’s moves to stabilise currency trends. Companies that are net exporters, or those with natural hedges, are likely to emerge stronger in this environment.

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