Rupee appreciation won't have long-term impact on Indian IT firms: Analyst

Last Updated: Wed, Jan 10, 2018 14:33 hrs
Rupee (Image Courtesy: PTI)

Mumbai: An appreciating rupee would not impact Indian IT firms in the long-term due to their higher hedging against the US dollar, said an analyst on Tuesday.

"Though the rupee appreciation will have an impact on IT firms in the short or near term, they are safe because of their hedging against the US dollar at a higher level," IDBI Capital Associate Vice-President and Research Analyst Urmil Shah told BTVi in an interview.

Asserting that the rupee would not appreciate in a significant manner on a full year basis, Shah said the rupee would be at Rs 64.70 against the US dollar in the second half of fiscal 2017-18 as in the first half.

"Rupee has appreciated because of what the dollar has done not only to it (rupee), but also other currencies. We don't see a significant appreciation of the rupee on a long-term basis," he reiterated.

Noting that one per cent appreciation in rupee would have 20-35 basis points impact on the operating margins of IT companies, Shah said their higher hedging against the US dollar would take care of any impact for the next three or four quarters and "which is why we don't see much impact on the earnings before income and tax (Ebit) of the IT companies".

As the third quarter is seasonally weak with less working days and furloughs in the manufacturing sector, the IT spend will be incremental in the retail CPC.

IDBI Capital, however, expects the fourth largest software major HCL Technologies to grow the fastest in the quarter under review.

"Among mid-cap companies, we expect L&T Infotech to grow strongly in the third quarter by 2.8 per cent sequentially," said Shah.

On the outlook for calendar year 2018, he hoped there would be some recovery in the revenue growth.

Though the overall revenue growth was not encouraging in calendar year 2017 for IT companies, digital solutions business grew well up to 30 per cent.

"For larger IT firms like Tata Consultancy Services (TCS), digital solutions business grew 20 per cent while for medium size firms like L&T Infotech, it has touched 30 per cent.ATechnology is one area in which enterprises would want to spend to drive growth. It make us factor a relatively positive year for 2018 as compared to 2017," added Shah.




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