Sliding rupee: The sectors feeling the worst of it, and those winning big

The rupee has dropped nearly 7% against the US dollar in the year to date, falling to a low of Rs 79.96 to a dollar last week and even breaching the psychological 80-mark in the over-the-counter and derivatives markets. Nomura expects INR to fall to Rs 82 in the third quarter of this calendar year.


In general, net exporters will gain as they will receive more rupees for their dollars while net importers will need to pay more to buy dollars for imports. Those with large foreign loans will also see rupee interest costs rise. ET looks at the sectors impacted the most.

1. Information technology: (Thumbs up)

IT companies are the biggest gainers as they bill most clients in US dollars. Americas, including the US, contribute about 50-60% of revenue. Their rupee earnings rise as the Indian currency falls

Impact:

• A 100-bps fall in rupee against dollar translates into a 30-bps operating margin benefit
• 115-basis point operating margin expansion on average for IT cos
• Some of the gains are being offset by other cross-currency headwinds

2.Pharma: (Thumbs up)

A net gainer sector as it’s a big exporter though raw materials are substantial imports. In FY22, India exported $24.62 billion worth of products, of which about 30% is to the US. Raw material imports were about $4-$5 billion.

Impact:

• Exporters to the US stand to gain the most
• INR fall vs USD to add 0.1-0.15% to EBITDA margins
• Domestic-focused formulation, API players to face cost escalation

3. Garments: (Thumbs up)

Sector to benefit given the significant exports and most input costs are locally sourced

Impact:

• For every 1% fall in Rupee, profit increases by 0.25-0.5%
• Rupee fall may also make exports more competitive

4. Tea: (Thumbs up)

India exports nearly 230 million kg of tea, or around 16% of what it produces, to countries like Russia, Iran, the US, the UK, Germany, Japan, Poland, CIS countries.

Impact:

• Profits expected to rise by 5-10% in current fiscal
• Increases competitiveness of Indian tea in the world, spurring more exports

5: Oil & Gas (Thumbs down)

The most adversely impacted sector as India imports over 85% of oil and half of the gas it consumes.

Impact:

• Purchase costs to rise for crude importers (Indian Oil, BPCL, HPCL, RIL, Nayara), as well as gas importers (GAIL, GSPC)
• Margins to take a hit if pass through not allowed
• Local producers such as ONGC, Oil India, Vedanta, RIL as well as fuel exporters like RIL and Nayara would see higher rupee realisation

6. Renewable energy: (Thumbs down)

Indian solar plants depend heavily on imported solar cells and modules.

Impact:

• Project costs would rise, tariffs higher in future bids
• Margin compression for upcoming projects
• Every Re 1 fall vs Dollar leads to 2 paisa/unit increase in tariff

7. Steel: (Thumbs up)

India exports between 10-15% of its steel production

Impact:

• Makes Indian steel more competitive globally
• Balances the impact of the recent export duty on steel
• If INR falls to 85 vs USD, entire 15% duty will be absorbed

8. Auto: (Neutral)

About 10-20% of a car's total raw materials by value are imported but firms also export vehicles

Impact:

• Makes cars, in general, more expensive
• Exact impact will depend on inputs purchased and level of exports

9. FMCG: (Thumbs down)

Key raw materials like crude and palm oil derivatives are imported and account for nearly half of input cost

Impact:

• Companies have taken price hikes to offset higher input costs
• Margins may be impacted as full pass-through has not happened
• Companies need additional 15% price revision just to maintain gross margins

10. Consumer electronics (Thumbs down)

Around 40-60% of total input cost including components are imported; in smartphones, around 70-80% of the input cost is imported

Impact:

• Industry had last benchmarked rupee at around 75 vs USD
• Re fall has been largely offset by recent drop in component costs.
• Companies not likely to drop prices since they want to improve their margins after 2 years
• Demand is down 30-35% in last 2 quarters

11. Aviation (Thumbs down)

About 60% of costs (spares, maintenance, aircraft delivery payments, expat salaries and fuel uplift for international flights) are in dollar terms.

Impact:

• Raised cost burden at a time when fuel prices are at record highs
• Will impact profitability for airlines
• Will make overseas tickets more expensive

12. Telecom services: (Thumbs down)

Telcos spend around $6 billion annually importing network gear. A falling rupee makes gear imports more costly

Impact:

• Weaker rupee could push up capital expenditure bill by 5% in FY23
• Drag on profits, unless telcos increase tariffs
• Higher interest payouts on dollar debt

13. CEMENT – (Thumbs down)

Energy and logistics account for around 50-60% of the total cost. As the rupee weakens, both these bills are going to go up, impacting the margins of cement companies.

Impact:

• Higher input costs as energy and logistics bills go up
• Limited ability to pass on higher costs to consumers during lean season