India's corporate sector, which sits on a huge pile of foreign currency debt, is under threat as the rupee's downward spiral exacerbates the debt burden of companies already battling feeble growth and sluggish demand.
The rupee has declined 17 percent against the dollar this year, falling to record lows in recent weeks as investors shun emerging assets on fears of the U.S. winding down its monetary stimulus, which could turn off hot money flows.
"Indian companies have huge debt, not just in India but offshore as well. In the first part of the year, 40 percent of all incremental debt taken out by Indian companies was offshore in U.S. dollars...I suspect that quite a lot of that was unhedged," Andrew Holland, CEO, Ambit Investment Advisors told CNBC.
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"I worry about cash flows for Indian corporates, particularly in the infrastructure sectors, real estate sectors where you have huge amounts of debt sitting on company balance sheets," he said.
Indian companies have ramped up their overseas borrowings in the recent years to take advantage of low interest rates in global bond markets.
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The country's corporate sector has a total of $48 billion in outstanding U.S. dollar debt, with banks accounting for around $24 billion, public sectors companies for $6 billion and private sector firms for $18 billion, according to financial services firm Seymour Group. Of this, $75 million in publically listed corporate bonds is set to mature this year, followed by $4.07 billion in 2014, and $5.3 billion in 2015.
U.S. dollar-denominated debt makes up the bulk of India's external borrowings with a share of 57.2 percent at the end of March 2013, according to the Reserve Bank of India (RBI).