Weaker rupee might turn things around for TCS, Wipro and Infosys

Infosys, Wipro and TCS might reap the benefits of a weaker rupeeBCCL

  • The Indian rupee hit ₹70.84 against the US dollar.
  • This may be bad news for some but good news of Indian IT companies that bill in dollars.
  • It could increase revenue for them of what was otherwise shaping up to be a 'glum quarter'.
The Indian government is trying to rein in the fall of the rupee’s value against the US dollar, that hit ₹70.84 when the markets closed yesterday.

While this may be bad news for importers, people looking to travel overseas and India’s foreign exchange reserves — it could spell good news for Indian IT companies on account of larger exposure to US markets and dollar billing.

Weaker rupee means stronger revenue

Tech giants like Tata Consultancy Services ( TCS), HCL Technologies, Wipro and Tech Mahindra were looking at a ‘glum quarter’ after missing their revenue goals in June, according to Kotak Institutional Equities Research. Even Infosys, barely met its target.

“Cost increase, higher visa applications and large deal transition costs contributed to the pressure," stated the report.

Yet, there is a light at the end of the tunnel, thanks to rupee fall. More than 80% of the total business done by top IT services companies in India comes from overseas markets, which is billed in currencies other than the rupee — usually the US dollar.

This year, Infosys increased its revenue growth guidance for FY20 from 7.5 to 9.5% to 8.5 to 10%. However, Wipro expects its revenue to either decline by a percent to grow by a percent.

TCS doesn’t issue an annual guidance but analysts expect double digit growth revenue from the company in FY20. But the real question for the company is whether or not it will meet its ambitious target of a 26-28% margin guidance, which it hasn’t been able to meet over the past three years due to currency pressures. Now, these pressures seem to be easing.

Profit or risk

Tech companies, like all others with exposure abroad, tend to hedge their exposure in case of a fall or a gain — usually at around 30%. In spite of that, some benefits might seep into tech companies’ balance sheets.

Even if profit isn’t seen in the short run, a weakening rupee offsets some of the key risks faced by IT firms. "This includes sharp cross country movement that could appreciate the value of the rupee, pricing pressure and lower margins," according to Edelweiss Securities Limited.

IT companies in India have already been hit by the Union Budget’s decision to impose a 20% tax on buyback shares making their financial performance all the more important. Amidst a host of bad tidings, falling Rupee could be a morale booster.

See also:
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