Rupee would continue to depreciate against the dollar due to cross currency volatility in the global markets and India's huge trade deficit, a senior executive of Infosys Technologies said on Tuesday.
“Currency markets are going to be too volatile and the rupee will tend to weaken further against the dollar as in the case of euro and other active currencies,” Infosys Chief Financial Officer V. Balakrishnan told IANS.
Another reason for volatility in rupee-dollar rate is the country's huge trade deficit that is buffeted by rising capital inflows, mostly in the form of foreign institutional investments (FIIs), which are volatile in nature.
“We are going to see rupee under pressure for some time though the fluctuation will be in a range, which should be manageable,” Balakrishnan said on the margins of a briefing on the IT bellwether's financial performance during the first quarter (April-June) of this fiscal (2010-11).
Weakening of the rupee against dollar by Rs.1.95 during the quarter under review from Rs.44.50 to Rs.46.45 (April-June) impacted the company's operating margins by 1.8 per cent and its net profit by 2.4 per cent year-on-year (YoY) and seven per cent sequentially (quarter-on-quarter) despite hedging.
“Currency volatility has an impact of 30-50 basis points on our margins, which declined to 28.3 per cent in the first quarter. Even a depreciating euro against the dollar impacts our export revenue and net income levels,” he said.
With the 10-year tax holiday under the Software Technology Parks of India (STPI) scheme ending for its older development centres as entities and uncertainty about its continuation for newer units beyond this fiscal (FY 2011), effective outgo on tax will be 25 per cent as against 21 per cent till last fiscal.
“Currency volatility and higher tax rates will have a bearing on our net income level. Unless we grow by 20 percent in future by performing much better, it will be difficult to neutralize the twin impact on our margins,” Balakrishnan asserted.
The company's net profit declined to Rs.1,488 crore (Rs.14.88 billion) in the first quarter from Rs.1,525 crore year ago and Rs.1,600 crore quarter ago.
To cushion its margins from exchange fluctuation, the company has hedged $700 million in a limited range of Rs.45.50-47.50 for the first two quarters of this fiscal.