With rupee plummeting to R52.73 against the dollar on Tuesday, the $76 billion Indian IT industry, which derives over 60% of its revenues in US dollar terms, is sure to gain on margins this quarter. The falling rupee may serve as a much needed cushion for lowered volumes and boost revenues at a time when top IT companies have forewarned tough times in the context of a gloomy European situation and global recessionary trends.
?On an average, the rupee is up 7% against the dollar compared to last quarter. For every 1% depreciation, there is a 30-40 bps increase in margin. This could give them a much needed cushion against drop in volumes going forward,? said Sanjeev Hota, senior analyst with brokerage firm Sharekhan. ?Tuesday?s bounce back on the BSE was led by the IT index, with some IT companies gaining a lot of what it had lost in the past few days,? Hota added.
Having crashed on Monday, IT stocks regained footing on the BSE after the rupee hit rock bottom on Tuesday. The IT index moved up 2% at 5,585. Infosys, which had lost almost 5% over the past nine days, gained 2.3% at R2,723. TCS and Wipro were up 1.8% each.
?The currency movement is definitely going to be good for the industry. However, there are several other factors, such as cross currency movements, and the dollars performance against other currencies that will determine the final impact. We are going to continue with a short term hedging strategy and cover net exposures for the next two quarters,? said V Balakrishnan, CFO, Infosys.
According to analysts, mid-tier and smaller IT firms stand to gain more from the falling rupee. ?From a short-term perspective, the depreciation of rupee is generally is a good news for IT industry as it is highly dependent of export revenue. The impact could be more prominent on small and medium sized IT services companies as they normally don?t hedge against rupee variations,? said Benoy CS, director, ICT Practice, Frost & Sullivan, South Asia & Middle East.
Mid-tier firm MindTree, for instance, hedges 50% of its subsequent month?s cash flow on a 12 month basis, while Infosys tends to hedge 60-70%. ?At the moment the rupee is working very well for us. There is enormous volatility. We will have to watch what happens over the next few days,? MindTree CFO Rostov Ravanan said.