The steady fall of Indian rupee against the US dollar is widely seen as a big bonanza for India's export-oriented businesses. In fact, many analysts reported that Indian IT services companies, which earn a large part of their revenues in dollars, may witness an improvement in their margins. However, the experts with whom THE WEEK spoke to suggest that the rupee depreciation may not transform into big gains for the Indian IT services companies immediately. But if the depreciation trend continues, the IT services companies will stand to gain in the long run.
Alok Shende of the Mumbai-based Ascentius Consulting said that while the general impression is that the impact of weakening of domestic currency will be benign for the Indian IT industry, it might not be necessarily so. “In the short-term, most of the IT contracts have a provision for passing on a proportion of incremental benefits of currency depreciation to the client. For medium to long-term prospects, the jury is still out there if the global economy is likely to face a slowdown. If the likelihood of slowdown increases in 2019, the softening of demand will negate the impact of rupee depreciation,” Shende told THE WEEK.
Another expert, B.S. Murthy, CEO of the executive search firm LeadershipCapital, is of the view that the rupee deprecation may translate into 1-2 per cent gain in their bottom line only if the depreciation trend continues for a long-time framework, say for the next few months. He is of the view that many of the large IT services companies hedge their receivables and may not be able to benefit from this trend immediately. However, he feels that the small and medium IT services players may not be hedging their receivables to a large extent and will benefit the most from this trend.
“It is the small and medium enterprises that stand to gain from this trend as they may be having short-term contracts or consulting work, and hence, they may not have hedged their receivables. In the long-term, for large companies such as TCS or Infosys, if the rupee continues to depreciate, they may not hedge a large amount of money. Temporarily they will enjoy this depreciation in the form of a small-term bonus to their bottom lines. But broadly, 1-2 per cent gain translates into big money for these IT services biggies as they have multi-million dollar contracts and will gradually add to their profitability in the long run,” added Murthy.
