With the rupee tumbling to a record low of 72.67 per US dollar, the IT sector has emerged an attractive bet for investors. The BSE IT index has already clocked over 40% gains YTD. Global brokerage firm Macquarie believes that the benefit of the rupee’s fall will be varied across the Indian IT companies. Accordingly, it has picked Tata Consultancy Services (TCS) and Tech Mahindra as the top large-cap IT companies which will be the biggest beneficiaries of the decline in the rupee.
As of last close, TCS has gained 54% this year, while Tech Mahindra has risen 52%. Macquarie expects TCS to post strongest organic growth of 10.1% in FY19 as compared to 5-8% growth for its peers during the same period. Among the mid-cap IT companies, Persistent Systems is Macquarie’s top pick.
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In terms of valuations, Macquarie has upgraded Wipro Ltd and Hexaware Technologies Ltd to “outperform”. In the large-cap basket, HCL Technologies Ltd and TCS are the top picks of Macquarie. Larsen & Toubro Infotech Ltd is the top preference among midcap companies.
Macquarie expects the companies to retain some benefits of a falling rupee and use the rest to increase SG&A (selling, general & administrative expense) efforts, fight pricing pressures on renewals. According to analysts at Macquarie, while midcap companies will grow much faster than the overall industry growth rate of about 8%, growth in large caps will have varying trends in FY19.
The rupee had tumbled nearly 93 paise to a fresh record low of 72.6738 against the greenback on Monday, before staging a mild recovery to close trade at 72.4450. On Tuesday, the rupee opened on a positive note, recovering almost 15 paise to open at 72.2962 against the US dollar, supported by the dollar’s weakness against some currencies.