If the rupee weakens further, could this trigger steep earnings downgrades? If so, what might be the extent of these downward revisions?
If the rupee weakens further, aggregate earnings may, at the margin, see improvement as exporter earnings (IT, chemicals, pharma) and commodity earnings (metals, energy) may get a boost. Also, it may help drive exports in some of the industrials, auto companies. However, it’s likely to weigh adversely on the consumer-facing segments where a weaker rupee raises input prices, which will either weigh on margins (if not passed through) or undermine demand (if passed through to the end consumer). Thus, the impact is likely to vary sectorally, but at an overall index level it should increase earnings estimates rather than lower them.
