Will rupee slide hit Indian IT exports?

BANGALORE, INDIA: Over the past two months, the rupee has depreciated about 13 per cent against the dollar, due to deteriorating global risk sentiment and weak domestic fundamentals. Since April, the fall has been about 7 per cent.

It has cast a shadow over the software exports of Indian IT companies and is being perceived as a big threat to the players in the industry.

According to the National Association of Software and Services Companies (NASSCOM), "More than depreciation, the volatility of currency movement is a concern that needs to be tackled, since it hinders the planning process for the Indian IT-BPO industry."

"While there is a marginal impact on the bottomline when the rupee depreciates, it is reversed when the currency movement is the other way," stated NASSCOM, which has given a guidance of about 11-13 per cent growth in margins for the industry.

The industry, along with BPOs, garnered about $100 billion export revenues in fiscal 2012, to which the U.S. contributed as high as 58 per cent, according to data available with the NASSCOM.

"The IT industry as a whole has benefited, but volatility is not good for the corporate sector. The rupee has been extremely volatile recently. Now, IT companies must plan on how to effectively manage this volatility," KPMG India Partner (Financial Risk Management) Rohit Bammi has said.

Take, for instance, Tata Consultancy Services, the largest IT exporter from the country. It makes 98 per cent of its revenues, which translates into Rs. 38,098 crore, from exports.

In April, Infosys chief financial officer V. Balakrishnan had said that the rupee had benefited them for the year (fiscal 2012), as it depreciated by about 5.6 per cent in 2011-12 and that was beneficial to a margin of around 2.3 per cent. "But during the year, (employee) utilization came down by 4 per cent and the rupee benefit was more or less offset by lower utilization."

In order to negate the impact of the rupee slide, MindTree has been keeping 50 per cent of its net foreign earnings open. "We have rolling 12-month forecasts... every month we calculate our net foreign currency exposure," said the company, "This is done by forecasting our net earnings for the next 12 months and expenses in foreign currency. On the net exposure, we hedge 50 per cent of it."

The situation might not remain the same, if the rupee continues to depreciate further against the dollar. Now that the fall has necessitated the hike in fuel prices, petrol to start with and to be followed by diesel and LPG, it might make it worse. Almost all IT companies rely on diesel for transportation and power generation purposes.

While many IT majors actively promote car pooling and insist on their employees travel by their company buses, in a way to save costs on fuel, it's only a handful that effectively put into use biofuel consumption for daily requirements.

"Almost 60-65 per cent of our employees travel by our office buses and our company has also recommended car pooling, but nothing much has been done otherwise, especially after the recent petrol price hike. It's time they came up with a plan to cut additional spending on fuels, probably by exploring alternative options to conserve fuel and other energy resources," said a source from a tech major in Bangalore.

Is it one of the ways out, from an impending crisis?