Depreciating rupee may add close to 1.5% to the revenue earnings of the major IT players for the September quarter while the impact of a slowdown in the developed economies may come with a lag effect say analysts.
Indian IT stocks especially the index heavyweights such as Infosys, TCS and Wipro have been leading the market gains in the recent past thanks to a depreciating rupee that is trading near a two year low. The BSE IT index has outperformed the market giving 10.3% returns since August 26 while Sensex gained 7.7%. During the same period, the rupee has lost 4.7% of its value against the dollar.
Interestingly, the recent gains in IT stocks like Infosys, TCS and Wipro were responsible for about 20% of the 1,120 points gain made by Sensex since August 26. Despite the impressive rebound in stock prices of Infosys and Wipro, they are currently trading at 20% to 25% discount to their respective historic price to earning averages. Analysts say that this discount is because of the cautiousness amongst investors as regards a possible slowdown in developed markets, which in turn could affect IT spends.
According to analysts, in case of a further depreciation of rupee, Wipro may tend to lose out to its peers since the company has the highest outstanding hedge of the order of $1,600 million, according to estimates. These hedges are believed to be spread across a period of 4 to 12 months while typically IT companies hedge their forex earnings for up to two quarters.
According to an analyst, the September quarter results of the IT majors are not likely to have a huge impact of the slowdown in the developed economies. ?The nature of the global slowdown so far appears far different from the post Lehman era. Hence, the sequential (qoq) performance of the IT companies in the September quarter may be in line with the expectations of a 5 to 8% revenue growth. The average rupee depreciation of 1.5% may also provide a cushion to Q2FY12 earnings,? he said.
The average value of rupee for the September quarter so far stands at R45.4 against one dollar, losing 1.5% value compared to its average of R44.74 in the June quarter. Analysts also believe that a substantial depreciation in the rupee from hereon could lead to earnings revision for the the second half of FY12.
According to a latest report by HSBC Global Research, hiring in the technology sector is a typical lead indicator for a slowdown in the sector. And as per the report, the hiring remained strong in the month of August. It cited a robust 7% month on month growth in Indian IT hiring in August while mentioning that IT companies are reassessing their hiring plans, and initial signs of a hiring slowdown will probably be visible in September readings.