Rupee volatility can slash earnings by 250 bps in FY26, says Crisil; these sectors will be worst hit

The recent sharp fluctuations of the rupee against the US dollar, amidst ongoing geopolitical uncertainties, are projected to affect the earnings of certain sectors by as much as 250 basis points (bps) in fiscal 2026, according to a report from Crisil Ratings.

The rating agency firm clarified that, the rupee fluctuated from ₹83.81 per dollar on October 1, 2024, to ₹87.40 on February 28, 2025, before recovering to ₹85.65 on April 3, 2025. This comes after an annual depreciation of the rupee by 1-2% over the previous two years leading up to September 2024.

Despite some recent appreciation, Crisil Intelligence anticipates that the rupee will continue to weaken against the dollar and stabilize at approximately ₹88 by the end of fiscal 2026.

Nonetheless, the overall effect on the credit profiles of companies within the Crisil Ratings portfolio is expected to remain neutral.

Rupee depreciation impact on sectors

The rating agency mentioned that a sharp depreciation of the rupee will lead to a significant rise in costs for sectors heavily reliant on imported or dollar-denominated raw materials, without a corresponding increase in their revenues, thus likely adversely affecting their earnings in the short term.

This includes industries such as complex fertilizers, airlines, oil and gas (refining and marketing), polyvinyl chloride (PVC) pipes and fittings, capital goods, pharmaceuticals (active pharmaceutical ingredients or APIs), and renewable energy.

According to the report, a declining rupee might partially boost the earnings of sectors like information technology (IT), home textiles, and marine foods, which primarily cater to international markets.

The effect is likely to be negligible for other sectors with significant international trade exposure, including pharmaceuticals (formulations), chemicals, primary steel manufacturers, gems & jewellery, ceramics, city gas distribution, and edible oils, due to their natural hedges and/or their ability to transfer increased costs to consumers.

"While the near-term impact on earnings of corporates remains monitorable, the overall credit impact is likely to be neutral as it will get neutralised over the medium term once businesses adapt to the new currency levels.

The company-specific impact will also depend on the proportion of outstanding debt exposure in dollars and hedging practices adopted, as the rupee depreciation would inflate liabilities and lead to higher debt obligations and/or mark to market losses which could impact the credit profile if the amounts involved are significant," said Crisil Ratings in its report.

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