It's time for some cheer in India's $18-billion business process outsourcing (BPO) industry with the depreciating Indian rupee providing a much-needed breather to the export-driven BPO firms whose diminishing cost arbitrage had impacted margins in the last several quarters.
India-based BPO companies with maximum exposure in the US are expected to lead the party unlike its peers who have large near-shore presence and incur significant chunk of their cost in dollars and pounds.
Industry experts point out that BPO firms are likely to see a favourable impact in their profitability during the April-June quarter. However, the impact might be limited as most of the currency fluctuation happened in June. A positive impact of 10-15 bps is expected in the quarterly results.
“The likes of EXL Services and WNS, which are primarily India-based, are favourably impacted by this. However, the likes of Genpact, which have multiple near-shore centres in the UK, Czech Republic and other places in Europe, will not reap the benefits as a significant part of their costs are in dollars and pounds,” Pradeep Udhas, partner and head (IT-ITes), KPMG India, told FE, adding that BPO firms focused on the Indian market will not be impacted as their costs and revenues are both in rupees.
Typically, a 1% fall in the rupee versus the dollar results in an increase of 30-50 bps in profitability. On June 20, the rupee nearly touched the 60-mark against the dollar for the first time in history, depreciating 10% in just a month.
“We are all grinning from from ear to ear,” said, Raman Roy, chairman & managing director, Quattrro, a BPO services firm. However, he cautioned that the depreciating rupee could lead to a demand for price cuts from the customers. Roy said that those BPO companies which have contracts that are short-term in nature with tenure of a year could witness some pressures from clients who would push for some price reductions.
A depreciating Indian rupee has always worked in favour of the export-oriented sector, but the volatile movement of the currency against the US dollar is unlikely to bring any long-term benefits for the industry.