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Weaker R to cheer IT sector profits

The depreciation in the rupee is set to bring strong gains for India’s information technology (IT) exporters, long hit by a strong local currency that had eroded their earnings often denominated in the US dollar, which touched an all-time low of Rs 53.35 on Wednesday. Shrenik Avlani reports.

business Updated: Dec 14, 2011 22:37 IST
Shrenik Avlani

The depreciation in the rupee is set to bring strong gains for India’s information technology (IT) exporters, long hit by a strong local currency that had eroded their earnings often denominated in the US dollar, which touched an all-time low of Rs 53.35 on Wednesday.

“In the short term, the weakening rupee is good for us. It will boost our numbers in the immediate future,” said Sonjoy Anand, chief financial officer (CFO), Tech Mahindra, without giving any guidance as it is against company policy for a listed company to make forward-looking statements But he added that “such volatility” of the kind witnessed currency value is not good. “Planning becomes very difficult,” Anand said.

Many IT companies pay hefty premiums to hedge against fluctuations in the currency, but that involves a risk that often causes market losses.

The October-December quarter is traditionally the leanest in the number of working days. But the weaker rupee will boost IT companies’ rupee revenue significantly, said Ankita Somani, research analyst at brokerage firm Angel Broking. The final quarter will be significantly better than Q3. She said every 1% fall in the rupee adds about 0.4 percentage points to an IT company’s profit margins “And this time around, the rupee fall has been substantial from the Rs 48 to a dollar range to Rs 53,” Somani said.

“Even if the companies report a single-digit growth in dollar terms, in rupee terms they are looking at double-digit growth,” she said.

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