• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

Virendra Verma

MUMBAI, Dec. 24

EVEN as the Indian software industry appears to be emerging from the effects of the slowdown in the global IT industry, another factor now seems likely to hit the sector — the appreciating rupee.

A strengthening rupee would directly impact the revenues and earnings of most of the leading as well as medium sized software companies, said analysts from a couple of leading stock broking firms.

The analysts said the sustained appreciation of the rupee against the US dollar is emerging as a threat to Indian software sector earnings. The rupee has appreciated by two per cent from its low of Rs 49.02 to the dollar in June this year. The Indian currency on Friday closed at the year's high of Rs 48 against the US dollar.

DSP Merrill Lynch (DSP), a leading investment banking and stock broking firm have already revised the rupee target in the changed scenario. The firm expects the Indian rupee to appreciate to Rs 48 against the US dollar in 2003 (from its earlier estimate of Rs 49) and further to Rs 47.3 in 2004 against its earlier estimate of Rs 50.3.

It said every 1 per cent appreciation in the rupee, can reduce Profit Before Tax (PBT) for Indian software companies by 2 per cent to 4 per cent.

Foreign stock broking firm Credit Lyonnais Securities Asia Emerging Markets has said that in the event of currency appreciating to average Rs 46 against the US dollar from current levels, margins of Indian Software companies could fall by 1 per cent to 2 per cent and profits could be lower by 10 per cent to 20 per cent, compared to earlier forecasts.

CLSA said that as Indian software companies have 60 per cent to 90 per cent of their revenues denominated in US dollars, with a significant proportion of costs denominated in Indian currency, the appreciating rupee means a significant risk to margins.

Some of the leading listed companies that have high dollar earnings, in percentage terms, to their total revenues include Satyam Computers, Infosys Technologies, Digital Globalsoft and HCL Technologies.

Analysts feel the rupee could continue to appreciate in the medium term due to the comfortable forex reserves of over $68 billion, increased inflows from NRI deposits and service exports; all this would put pressure on software companies' margins.

DSP feels that the strengthening rupee can also put pressure on margins owing to a mismatch in costs and revenue estimates at the time of software companies bidding for orders during the last four quarters. Given this scenario analysts feel that year 2004 could be a zero growth year for a number of second rung software companies.

Send this article to Friends by E-Mail
Comment on this article to BLFeedback@thehindu.co.in

Stories in this Section
Escotel launches SMS Edge for advertisers

Copyright © 2002, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line