Infosys CFO and board member V Balakrishnan on Wednesday said that Indian companies would have to live with extreme currency volatility for some time to come with the turmoil in global markets. Although the sharp rupee depreciation of 10% in one month has been advantageous to the export-oriented IT industry, the executive noted that the country can do with better currency management. Else, it will hurt the economy.
Even in the past, Balakrishnan has been vocal about government intervention in the currency markets. He said that RBI should play an active role to avoid the broader economy from taking a hit because of extreme rupee movements.
?This is not about whether the rupee depreciation is beneficial for exporters or not. It will hurt the economy. I think RBI should take an active role in making sure that there is no extreme volatility in the currency. You need to intervene when it is required and you need to keep off when it is not required,? he noted.
Stressing on better currency management, the CFO said that the economy can?t have a currency moving 10% either side in a short time frame. ?Last quarter was a unique quarter because we saw the rupee at a 52-week low and a 104-week high. It hurts everybody. Globally, most countries, wherever there was a sharp appreciation, whether it is China, Brazil or Thailand, have taken steps to address the issue. That is what the RBI should have done some three quarters back,? he said.
Weakening of the rupee against the dollar is likely to continue for some time to come, helping all export-focussed companies, the executive said. ?Earlier this year, there were concerns about the US?its growth and unemployment. So the dollar depreciated quite drastically against all the global currencies. Then the Euro issue happened. This is impacting the euro and the dollar has appreciated. For India, it is unique.
India was growing well. But with the macro events, it is seeing some slowdown. The manufacturing growth is down, the services sector is also getting impacted to some extent. Add to that, you have a large trade deficit. Capital flows are coming down because India is seen as an emerging market risk. Even FII flows are down. When you put all of this together, the chances of rupee depreciating are much higher than those of it appreciating,? Balakrishnan said.
Infosys on Wednesday upped its EPS guidance for the full year and reported a two percentage point expansion in operating margins to 28% for the quarter ending September. ?For every one percentage point change in the rupee-dollar rate, we have 40 basis points correlation to the operating margins. This year, our guidance assumes that margins could decline by 80 basis points ? down from 3 percentage points from the beginning of the year. If it depreciates further, it could be more beneficial to the margins,? the CFO noted.