Currency volatility may hit IT cos profits -Governance Now

Currency volatility may hit IT cos profits

Appreciating rupee may kill exporters

PTI | October 26, 2010

Currency fluctuations are likely to dent the profit margins of Indian software exporters in the coming quarters, as uncertainties persist in the global economy, say analysts.

The country's top three IT players -- Tata Consultancy Services, Infosys Technologies and Wipro -- were affected by foreign exchange volatility in the September quarter this fiscal and their profit margins took a hit.

During Q2 FY11, July-September period, the rupee gained over three per cent against the US dollar, to touch about Rs 45. This year, the rupee has strengthened more than five per cent against the greenback.

"The appreciation of the rupee against the US dollar is likely to hit the profitability of IT companies in the coming quarters. Many players have raised this concern while coming out with their September quarter numbers," CNI Research CMD Kishore P Ostwal said.

Country's top software exporter TCS, which posted a better-than expected 32 per cent growth in the September quarter with a net profit at Rs 2,169 crore, raised concerned over the appreciating rupee.

The company recorded Rs 47-crore foreign exchange loss in Q2. It would be a "big headwind" in the next quarter for the company, TCS said.

Similarly, the country's third-largest software exporter Wipro incurred forex loss of Rs 41.4 crore during Q2 and raised concerns about the macro-economic environment.

Although Infosys did not report a forex loss in Q2, its Chief Financial Officer V Balakrishnan cautioned that the rising rupee would "kill exporters" unless the Reserve Bank of India steps into the market.

Balakrishnan said the company was facing uncertainties related to economic situation, currency and labour market.

Overall, software exporters saw a significant spurt in Q2 revenues, mainly because of new clients.

Some analysts said, however, that currency fluctuations would remain until there is significant recovery in the global economy.

Against the backdrop of sluggish economic conditions, and availability of cheap money in the US, the dollar has in fact taken a beating in the recent times, said one analyst.

He said a stable exchange value for the domestic currency is vital for software exporters, as many of them earn a big chunk of their revenues from the US.

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