Indian Companies Feel the Strain from Rupee's Sudden Weakness

Indian Corporate Earnings Impacted by Currency Fluctuations

Indian companies are grappling with the impact of the rupee's recent depreciation on their earnings. The currency's sharp decline has led to a spike in foreign exchange losses and increased hedging costs.

InterGlobe Aviation Ltd., the parent company of India's largest airline, reported a threefold increase in foreign exchange losses to 14.6 billion rupees ($169 million) in the quarter ended December 2024. Adani Enterprises Ltd., the flagship of the Adani Group, also cited foreign exchange losses as a factor in its decline in profits.

Smaller companies have also been affected. NIIT Learning Systems Ltd. and Tanla Platforms Ltd. reported forex losses of 14 million rupees and 44 million rupees, respectively, in the December quarter.

Weakening Rupee Fuels Hedging Rush

The rupee has weakened by 2.4% against the dollar over the past two months, the sharpest drop in emerging Asia. This has raised concerns that the Reserve Bank of India (RBI) may have relaxed its currency management policies.

While the RBI's previous approach had reduced volatility, it may have also made companies complacent about foreign exchange risks. Now, with slowing economic growth and rising global volatility, companies are rushing to hedge their currency exposures.

Data from the Clearing Corporation of India shows that companies purchased $48 billion of forward cover in December 2024, the highest level for the year. This has pushed up hedging costs by more than a percentage point in the past month.

Systemic Risks Remain Low

Despite the impact on corporate earnings, economists believe that India's low foreign debt to GDP ratio acts as a buffer against surging volatility. As of the third quarter of 2024, India's foreign debt stood at $411.8 billion, or 11.1% of GDP.

However, former policymakers have warned that the RBI's intervention to stabilize the exchange rate could lead to market participants outsourcing their risk management to the central bank.