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Rated Indian companies, banks can withstand sharp rupee depreciation: S&P

Press Trust of India  |  New Delhi 

Global Ratings Monday said most of its rated Indian companies and banks can withstand the recent sharp in the rupee, but a deep and sustained decline could squeeze their margins.

Global Ratings, in a report, said most emerging market issuers are buffered against further currency and do not face immediate downgrade risk from currency

In India, most rated Indian corporates and banks can withstand the recent sharp depreciation in the rupee since their overseas borrowings either have dollar-linked earnings or are hedged, said.

has fallen over 12 per cent this year and is currently hovering around 73 to a US dollar.

"Nevertheless, a deep and sustained decline in the currency could have broader economic effects on Indian corporates, including through knock-on effects of inflation and higher imported commodity costs squeezing margins. This would also result in an adverse impact on bank's asset quality, and may delay the recovery of Indian banks," S&P said.

Ratings said that it sees low risk from currency depreciation for companies in India, and the rest of and South Africa, while those in and are the most vulnerable to depreciation. The rest of and are in the medium-risk category.

The US-based agency said for many emerging market countries, the pace of currency depreciation has been less severe relative to the 'taper tantrum' and the global and Asian financial crises.

Factors like rising trade tensions, tightening of monetary policies in advanced economies, and the dollar's strength will continue to test emerging markets, it said.

"Interest-rate normalisation, combined with uncertainties around global trade and desynchronising global growth, is exacerbating pressures on emerging market currencies," said.

"Nevertheless, the uneven movements across emerging markets show investors are discriminating based on economic fundamentals and policy frameworks," Conti added.

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Mon, November 05 2018. 15:00 IST