J Padmapriya & P P Thimmaya,
The Economic Times
After nearly a year of tumultuous assault by the Indian currency, the IT industry is perhaps heaving a collective sigh of relief with the rupee depreciating to breach the Rs 41-mark against the US greenback.
Last fiscal, the rupee appreciated 11 percent, shaving off serious margins from IT companies’ bottom line. Every 1 percent rise in rupee had a 30-40 basis points impact on operating margins for most companies.
The currency upside assumes significance as it comes at a time when the IT industry is on a shaky wicket. Its principal market, the
During last month, the rupee has been continuously depreciating against the US dollar and has moved down from Rs 39.73 to Rs 41.3, lending some respite to the industry. The first quarter for the IT industry is typically marked by one-time higher expenses on account of wage increments and visa fees.
A depreciating rupee will act as a buffer as it will offset some of these components. Also tepid wage hikes is another expectation that will give them buffer in the current market environment. Most large companies expect wage hikes to be in the range of 8-13 percent, slightly lower than the last fiscal’s levels.
Says Infosys CFO V Balakrishnan, “As per our assessment, rupee will move both ways. In the short term, it may depreciate and if this trend continues till the end of the quarter, we will see a positive impact on margins.” During the quarter ended March, 2008, Infosys had a hedge of $760 million while in the December quarter, it had $1.14 billion.
Commenting on the rupee upside, Angel Broking IT analyst Harit Shah says, “Rupee depreciation is always good news for IT companies. But, there could be some hedging losses that TCS and Wipro may suffer on account of their long positions. Infosys has read the situation perfectly and has hedged accordingly.”
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