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India Ratings and Research (Ind-Ra) in its latest report has warned that the ongoing headwinds like war-triggered inflation, rate tightening by RBI and weak rupee will lead to a Rs 60,000 crore increase in 'risky debt' in FY23. Defining 'risky debt' as borrowings by companies having a net leverage or debt to operating profit ratio of more than five times, it said the ongoing troubles will take the stock of such loans to Rs 6.9 lakh crore by end of FY23, as against the Rs 6.3 lakh crore it would have been but for the Russian invasion of Ukraine.

According to the report, commodity consumers are likely to experience a contraction in margin by up to 3 percentage points in FY23, given the difficulty in passing on the price increase to users without impacting volumes. However, it said margins are likely to improve for commodity producers by up to 4 percentage points in FY23, on account of higher realisations amid higher commodity prices, although energy costs will impact producers more, given the energy intensive nature of their operations.

The report said there will likely be an asymmetric impact across corporates and also among companies in sectors, and added that large entities will show resilience on account of healthy balance sheets, easy access to financing and pricing power, while small and medium entities could face headwinds due to buoyant commodity prices and firming interest rates. It stated that a continued rupee depreciation is likely to exacerbate the challenges for both Indian importers and foreign currency borrowers in FY23. It pointed out that the modest improvement in demand can help entities in import-oriented sectors or net importers to pass on the impact of weak rupee to their customers.