India Inc Still Big on Foreign Loans despite High US Rates – Implications for Investors


The article discusses how Indian companies are increasingly taking out foreign currency loans to fund their operations and growth, despite rising US interest rates. Loans are emerging as the preferred route over bonds. Let’s analyze the key takeaways and implications for industries and investors.

Analysis for Layman

The US Federal Reserve has raised interest rates aggressively over 2022-2023, making bond financing expensive. So Indian companies like Reliance, Tata, HDFC Bank, etc are taking foreign loans instead to fund their capital needs. Loans worth over $25 billion have been taken this year, more than 2022’s $19 billion. Financial services, infrastructure, energy, and manufacturing firms need money to grow and banks are providing it.

Original Analysis

The article signals the continued strong growth fundamentals of India Inc, backed by a hawkish US Fed policy. Taking on foreign debt despite rising rates highlights India’s stable macroeconomic conditions and currency. Financial services leads, indicating strong credit growth and balance sheet expansion. Infrastructure, manufacturing/exports, and energy sectors also have major funding needs.

For lenders and investors, it shows confidence in India’s growth story. Swapping USD loans into INR provides stable rupee funding for NBFCs to expand lending. It does mean higher USD liabilities and currency risks for borrowers if the rupee falls. With high US rates, loan costs are also now higher than easier bond financing last year. But firms are willing to take that tradeoff to fund rapid growth. Overall, it sets up higher profit growth and capex among big corporates. But their leverage ratios may deteriorate if not managed prudently or USD appreciates sharply versus INR.

Impact on Retail Investors

For retail investors, this news signals optimism by big business houses and foreign lenders on India’s economic prospects despite global uncertainty. Sectors like banking, energy, infrastructure, manufacturing, and exports seem poised for strong growth ahead. This points to potential stock outperformance by large firms in these sectors.

Investors should analyze balance sheets of companies taking on higher overseas debt. Check their currency hedging policies, cashflows, and ability to serve the debt if INR weakens. See if higher leverage impacts their credit ratings. Overall capacity expansion and growth capex plans funded by debt is positive, but may result in higher volatility in profits and cashflows.

Review foreign ownership levels as overseas lenders take equity in some cases. Check if business models face margin pressure from higher interest costs. Rising rates may also delay or moderate V-shaped earnings recovery assumptions. Monitor stock valuations closely as higher perceived growth gets balanced against higher financial risk. Time entries and exits carefully during market corrections.

Impact on Industries

Major industries positively impacted include financial services, infrastructure, energy, manufacturing, and exports. Higher foreign capital inflows fund their growth plans locally while expanding capacities.

For banking, higher overseas borrowings signal confidence in India’s credit growth story. It provides stable rupee liquidity for NBFCs to expand retail lending. Banks can maintain net interest margins despite local rate hikes. Rising credit improves loan growth, deposits, more securitized assets. Profitability gets a boost but asset quality must be monitored.

For infrastructure, big-ticket project funding ensures order book visibility. Energy imports being funded help guarantee fuel supply as power demand grows. Exporters funding working capital needs bodes well for continued growth in shipments. Transportation, housing finance, and allied sectors also benefit.

But external risks remain – adverse currency moves, global slowdown impacting exports or remittances. Commodity price volatility also poses input cost and margin pressures. However, easy liquidity conditions bankroll the capex-driven growth.

Long Term Benefits

The long-term outlook seems constructive for India Inc. Overseas funding ensures large businesses have capital to keep expanding despite credit conditions tightening globally. Making loans the preferred route gives more flexibility on cost, tenors, etc., compared to bonds.

Capacity creation across core sectors will have powerful multiplier effects locally over 3-5 year horizon. Bank credit picking up indicates rising broad-based economic growth, consumer demand, and job creation. A robust corporate earnings growth outlook helps sustain premium valuations and attract more foreign inflows into India.

A conducive environment for manufacturing, infrastructure build-out, and exports will enable India’s $5 trillion economy target this decade. It cements optimism about the structural long-term growth story domestically.

Short Term Benefits & Negatives

The short-term outlook over 2023 seems promising – foreign funding eases liquidity and accelerates capex. But global recession worries remain, so continuous monitoring is warranted on external sector risks.

On the positive side, the loan option stabilizes NBFC funding profile compared to capricious bond markets. Banks also get support for loan book and deposit growth. Corporates across the board get to tap easy money to expand quickly. This capital expenditure helps create local jobs, boosts manufacturing and infrastructure sectors in the 1-2 year time frame.

But there are risk factors to track as well. Large foreign currency loans pose refinancing pressures if global liquidity tightens further. Currency volatility remains a key variable that can negatively impact borrower cashflows. Rising external debt also constraints policy options to defend INR.

Though RBI has substantial reserves to manage shocks, it remains an external sector risk especially if trade deficit keeps widening. And higher import costs are inflationary, tightening policy space. Other short term negatives include higher funding costs, delayed pass through to customers, timelag in capacities coming onstream etc. So investors need to track such risks even as growth impulses seem positive.

Companies to Gain

Companies that could benefit the most from this trend include:

  • HDFC Bank – India’s largest private sector bank is poised to report strong growth in its retail loan book funded by foreign borrowings. Its liability profile expands while keeping margins stable. Overall profit growth outlook remains strong.
  • Larsen & Toubro – The infrastructure & engineering giant gets funding visibility for its order book and can be aggressive in bidding for megaprojects. This helps medium-term growth prospects.
  • Reliance Industries – Parent firm and subsidiaries like Jio Platforms using overseas loans to fund their hardware and digital services growth plans via imports and capex. Market leadership bolstered across verticals.
  • Tata Motors – The loans allow it to fund product development costs, capex for electric vehicles and exports growth even as risks from economic slowdown loom. Healthy order book aids growth visibility.
  • ICICI Bank – Second largest private lender is expanding foreign funding to maintain growth momentum, especially in retail loans segment while keeping margins stable by substituting higher cost deposits.
  • Axis Bank – Similar to peers, foreign loans aid its market share gains in retail loans while expanding liability franchise; net interest margins supported.
  • State Bank of India – Being able to tap international markets for loans positively underscores its financial strength while helping expand domestic loan book ahead of the growth cycle.

Companies at Risk

However, some firms could face growth pressures or margin risks from the trends highlighted:

  • Bajaj Finance – NBFC may see higher cost of funds as it relies more on foreign loans, likely faster than repricing existing loans. NIMs could face transient pressures.
  • Bharti Airtel – Rising USD interest costs and currency volatility poses risks to profit growth even as capex in 5G airwaves and infrastructure continues rapidly funded by overseas debt.
  • Infosys – Margin trajectory at risk from higher H1B visa costs, rising travel costs, and wage inflation in overseas markets. But growth forecasts still remain stable as global tech spending rebounds.
  • HCL Tech – Similarly, the IT services exporter faces headwinds from rising costs even as it sees stable demand. Profitability might take a hit in the medium term.
  • Dr. Reddy’s Labs – Input cost inflation could accentuate if INR weakens further against USD. Pricing power in key generic drug markets like US remains modest. So margins might be pressured.

Additional Insights

The news underscores India’s strong countertrend growth dynamics even as the global economy slows. Easy overseas funding fuels medium-term capex boom locally. For investors and industry participants, risk factors like currency volatility impacts on profitability and input cost inflation warrant close tracking. But overwhelmingly positive indicators on credit growth, structural reforms, and formalization of the economy signal long-term confidence.


India’s continued reliance on foreign capital comes with attendant risks. But it provides the investment fuel for corporate India’s growth trajectory this decade as global liquidity adjusts. For investors, it means monitoring external risks while riding the structural domestic growth story across sectors.

Source Citation:
Bhalla, Mohit. “India Inc Still Big on Foreign Loans despite High US Rates.” The Economic Times, 6 Dec. 2023,

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