The weakening rupee coupled with the pickup in demand for technology products and services is helping the cause of Indian companies.
“It is good for the industry. There may be increase in hedging fee. But no company takes cover for 100 per cent revenues. Net-net, they benefit out of increase in dollar value,” said Ankita Somani, sector analyst at Angel Broking. Today, the rupee touched a new low, closing at Rs 63.13 against the U.S. dollar
Pickup in demand
Somani believes that the situation today is better than what IT companies were facing same time last year. “There is better visibility in the demand pipeline. All companies are seeing a pickup in demand for core IT services,” she added. A dip of one per cent in value of rupee would add 30-40 basis points in EBIDTA margins of a company. Indian companies re-invest a good chunk of the benefits they gain from the currency depreciation in broadening their solutions portfolio and increasing geographic penetration.
“Last quarter, the average currency conversion was at about 55-56 and this quarter we are looking at an average of 60. For the mid-tier companies, it would be broadly the same,” said Nitin Padmanabhan, Technology Analyst, Espirito Santo Securities.
Moreover, Indian IT companies are able to better plan their mitigation strategies on foreign exchange given that rupee has been moving in one direction in the last 12 months. Some companies could re-align their hedging strategies.
S. Mahalingam, former Chief Financial Officer of Tata Consultancy Services, believes that unless the fundamentals (read current account deficit) of the Indian economy undergo a change, the rupee would continue on its falling spree.
Despite the windfall predicted for Indian IT firms, it is unlikely that the benefits accruing from a weaker rupee will be passed on to clients. “We have not heard of any such instances. There may be some sporadic instances, where IT firms reduced (billing) rates for some clients. But we see no trend,” Angel Broking’s Somani said.
Exports to rise
Micro Technologies, a Mumbai-based surveillance products and services company, will increase exports to benefit from the current foreign exchange rates. The company has identified certain markets in Africa for the same, said its Executive Director Ganapathy V.
“We will go slow on everything to do with imports as we won’t be able to pass on higher import costs to Indian consumers who are reeling under the impact of an ailing economy,” he added.
(With inputs from Rajesh Kurup in Mumbai and K.V. Kurmanath in Hyderabad)