IT Firms Not Enthused by Depreciating Rupee TEAM ET NEW DELHI | BANGALORE | MUMBAI

As the Rupee plunged to its historic low, to . 52.73 to a US dollar on Tuesday, CFOs across Indian IT companies huddled inside their boardrooms, to assess the impact. But when they came out, there was an absence of an expected cheer. Instead, a tone of caution, on the weaker global business environment which may hurt their clients, was there. The $70-billion Indias ITBPO industry, for the first time, is not so exuberant about small gains in operating margins due to a rupee fall. Indias top four IT companies TCS, Infosys, Cognizant, Wipro and HCL Tech have together hedged close to $5 billion in hedges, mostly around . 45-49 to a dollar, which prevents them from expecting a windfall gain. Infosys, Indias bellweather IT company has hedged over $700 million at . 49 to a dollar. Infosys says the Rupee fall might have a little positive effect on operating margins. But in the past one month the dollar has also appreciated significantly against other currencies. So this, too, will have a negative impact on some fronts, V Balakrishnan, Infosys CFO told ET. IT industries leaders say a better and stable economy would be more welcome. The rupee has dipped from . 49.8 to a dollar, last month, to . 52.7 on Tuesday. Subsequently, the Rupee has also lost against the Pound and the Euro in the last thirty days. The key concern for the industry right now is the volatility of currency which is required to be in a shorter band so that there is stability in our pricing, said Nasscom President Som Mittal. Despite volatility, Nasscom maintains the FY12 guidance of 16%-18% growth for the $70billion Indian IT-BPO industry. All quarters of the industry are concerned, added Mittal. Every 1% change in rupee has a 40-50 basis points impact on IT companies profitability. This historic fall prevents the industry to gain too much in the shortterm. We would have to start looking at new ways of hedging, to gain from such windfall drops in rupee, said Pratibha Advani, CFO at NIIT Technologies. But we must also remember, that we are in the business of IT, and not treasury. Little forex gains are less important. A stable economic is necessary for businesses to flourish. The problem may arise when a customer gets smart and starts demanding the benefit of such gains in contracts, she added. Some companies which expect rupee to maintain these levels, said it might add to bottom line. If we assume the rupee ends on this level of . 53 till the end of this quarter, there will be an over

10% depreciation and a margin benefit for us, said Ravanan Rostow, CFO, Mindtree. But companies which took aggressive hedges, some covering over 50% of their quarterly revenues, when the rupee rose to levels of . 35 to a dollar, few quarters back, are less likely to benefit. HCL Technologies remains the favourite pick of Goldman Sachs, amongst the large tech companies who would benefit the most, as it hedged lesser. Others, such as Polaris and Cognizant, are holding on, and watching keenly the currency movement. Both companies say its too early to comment on how it may impact them in the quarter. Parochially, it may look good from an IT export standpoint, but definitely not great from a macroeconomic point of view especially in the longer term, said Sujit Sircar CFO at iGATE-Patni. In the long term we may see an increase in the cost of travel, and an onshore wage bill for companies, he added. Equities research arm of Goldman Sachs, says that if the rupee maintained its high levels, it would result in a higher EPS for large caps. But companies are more concerned about expanding their volumes, in this economic turmoil, which may hurt IT budgets in 2012. KPIT Cummins took a hard look at its hedging policy and when it saw the rupee depreciating over the last two months. The company which used to hedge 75% of its exposure for two quarters on a rolling basis, has now opted to hedge for a longer term.