Indian IT may gain from US economic shifts

With the Indian rupee hitting an all-time low, there is some reason for cheer in India’s information technology services industry, which will get more rupees for every dollar it earns. N Madhavan writes.

With the Indian rupee hitting an all-time low, there is some reason for cheer in India’s information technology services industry, which will get more rupees for every dollar it earns. But the real good news, I suspect, lurks further behind.

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The main reason for the rupee’s fall was the intended plan by the US central bank, the Fed, to withdraw its bond purchases that were pumping in money into the US economy to support growth and employment. The intention to scale this stimulus down in phases makes cheap money difficult for global speculators like hedge funds and portfolio funds such as the foreign institutional investors.

While this is bad news for those who just play with money by borrowing it in one place and deploying it in another market (called arbitrage), the real game will begin when corporations realise that money is not so cheap. That’s when they look for efficiency.

Also, the Fed policies are being reversed precisely because the US economy is doing better than it was before. This means that the prime customer segment of the US economy, the industries, corporations and financial services firms, are in a stronger position.

It is possible to argue that spending on cloud computing and mobile apps and other features to catch up with future opportunities may result in a fresh demand for Indian IT firms. That may give more push for Indian IT than short-term surges in value of the US dollar.