A sharp swing in the rupee's value could destabilise earnings in key Indian export-driven sectors such as pharmaceuticals, information technology (IT) services and gems and jewellery, according to a research note issued by CRISIL Ratings. The rupee's sharp volatility against the US dollar in recent months—in the backdrop of continuing geopolitical uncertainties - is set to dent the earnings of some sectors by up to 250bps (basis points) in financial year (FY)22-26, it says.
To be sure, the Indian rupee moved from Rs83.81 to the dollar on 1 October 2024 to Rs87.40 on 28 February 2025 before appreciating to Rs85.65 on 3 April 2025. "This is against an annual rupee depreciation of 1%-2% seen over the preceding two years through September 2024. While there has been some appreciation of late, we expect the rupee to continue to depreciate against the dollar and settle at about Rs88 by the end of FY25-26."
The rating agency notes that the rupee has been trading in a wide band and is expected to remain volatile amid shifting global interest rates and geopolitical uncertainty.
CRISIL estimates that sectors with high foreign exchange (forex) exposure—particularly those with significant revenues in US dollars but largely rupee-denominated costs—could see earnings before interest, tax, depreciation and amortisation (EBITDA) volatility of 100bps to 150bps for every 5% movement in the rupee's value against the dollar.
It says, "When the rupee depreciates sharply, sectors with sizeable levels of imported or dollar-denominated raw materials will see a substantial increase in their costs without a corresponding increase in their revenues and hence their earnings are likely to be impacted adversely in the near-term. This includes sectors such as complex fertilisers, airlines, oil and gas (refining and marketing), polyvinyl chloride (PVC) pipes and fittings, capital goods, pharmaceuticals (active pharmaceutical ingredients, or APIs) and renewable power."
The extent of the impact will depend on the exposure to foreign trade, ability to pass on the cost increase and hedging practices, CRISIL says, adding "There might also be player-specific impact across sectors based on the extent of unhedged foreign currency debt exposure."
"Pharmaceuticals, IT services, and gems and jewellery are the most exposed, given their large export orientation and dollar-linked earnings," says Subodh Rai, chief ratings officer at CRISIL Ratings.
The report cites that over 70% of revenue for these sectors comes from exports.
While a weaker rupee, typically, benefits exporters, the impact is not uniformly positive. The research highlights that working capital-intensive sectors like textiles and gems and jewellery may also see increased funding costs and stress on their already stretched balance sheets if volatility persists.
On the flip side, CRISIL says sectors like oil & gas, aviation and capital goods—where companies are net importers—may face cost pressures due to a weaker rupee. For example, the aviation sector, which incurs over 40% of its costs in foreign currency, could see profitability take a hit, especially with limited pricing power.
The rating agency notes that proactive hedging strategies and natural hedges in the form of forex-denominated costs and liabilities may offset some of the impacts. However, the extent of coverage varies widely across sectors, it added.
Despite the turbulence, the rating agency believes that rated companies are better prepared today, thanks to more prudent financial management and forex hedging practices, compared to previous currency shock episodes. The average hedging cover for rated companies with net forex exposure stands at around 70%, the report said.
Still, with the rupee expected to fluctuate in the Rs81–Rs84 band against the US dollar in the near term, companies will need to tread carefully to maintain margin stability.
