S&P Global Ratings in its latest report has said that most of its rated Indian firms and banks can survive the recent sharp fall in the rupee since their overseas borrowings either have dollar-linked earnings or are hedged. However, it noted that 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. It pointed out that this would also result in an adverse impact on bank's asset quality, and may delay the recovery of Indian banks.
The US-based agency has stated that most emerging market issuers are buffered against further currency depreciation and do not face immediate downgrade risk from currency depreciation. It sees low risk from currency depreciation for companies in India, China and the rest of Southeast Asia and South Africa, while those in Argentina and Turkey are the most vulnerable to depreciation. It added that the rest of Latin America and Indonesia are in the medium-risk category.
According to the report, 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. It also said that factors like rising trade tensions, tightening of monetary policies in advanced economies, and the dollar's strength will continue to test emerging markets. It pointed out that interest-rate normalisation, combined with uncertainties around global trade and desynchronising global growth, is exacerbating pressures on emerging market currencies. Nevertheless, it said that the uneven movements across emerging markets show investors are discriminating based on economic fundamentals and policy frameworks.