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Rupee volatility a concern for IT-BPO industry: Nasscom

May 18, 2012 19:23 IST

Weakening rupee may bring cheer for exporters including Indian software services firms like Tata Consultancy Services and Infosys, but industry body Nasscom seems concerned with the currency volatility saying it hinders the planning process for the USD 100-billion IT-BPO industry.

"More than depreciation, the volatility of currency movement is a concern that needs to be tackled since it hinders the planning process for the Indian IT-BPO industry," Nasscom said.

A 10 per cent-plus movement of currency in a few weeks is definitely concerning for the companies, it added.

The rupee has seen wild swings in recent months, mainly on account of FII outflows and the European economic turmoil.

For most big companies, the swings may even be neutral as they have hedging programmes in place to counter the currency fluctuations, say market experts.

Nasscom, however, differed in opinion. "While there is a marginal impact on the bottom-line when the rupee depreciates, it is reversed when the currency movement is the other way," it said.

Moreover, hedging as well as contracts that increasingly take into account the foreign exchange rates make an assumption of a direct correlation between currency movements and margins a bit misleading, Nasscom said.

Overall, the depreciating rupee is expected to help IT companies improve their margins as they earn their revenues in dollars. The Indian currency has fallen about seven per cent against the dollar since April.

Besides helping revenues and profits, Indian IT firms could also pass on some of the foreign exchange gains as savings to its US clients, helping ride out the lackluster demand.

According to Kotak Securities Head of Fundamental Research Dipen Shah, one per cent depreciation in the rupee has a positive impact of about 25-40 basis points on the margins.

Photograph: Vivek Prakash/Reuters

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