The Hindu Business Line : IT firms set to gain from exchange volatility

The exchange rate volatility is seen having a positive impact on the revenues of Indian IT services firms, which derive over 95 per cent of their revenues from the overseas markets.

The rupee has declined by some five per cent versus the dollar over the last one year, from Rs 43.58 to Rs 45.46.

On the other hand, the euro has appreciated by six per cent over the same timeframe.

"The weakening of rupee has an overall positive impact on revenues, as our reporting currency is the rupee," said Mr S. Mahalingam, CFO of TCS, without quantifying the gains. "At TCS, we are forecasting rupee movement in the range of 43.50-45.50 against the dollar with upward bias for the short term."

About 80 per cent of the IT firms' invoices are billed in dollar terms, with the rest in a mix of European and other currencies.

IT firms derive 60-65 per cent of their revenues from North America, 20-25 per cent from Europe, and the remaining from the rest of the world. As a rule of thumb, a one per cent decline in rupee will have a positive impact of 1.5-1.7 per cent on the EPS (earnings per share).

Wipro's Corporate Treasurer, Mr K.R. Lakshminarayana, does not expect a significant impact due to the decline in rupee as the company has taken a forward cover of over $500 million at the beginning of the quarter to cover two quarters.

Wipro will continue with its current hedging policy, Mr Lakshminarayana said. "We have a high preference for certainty over opportunity."

The CFO of Infosys, Mr V. Balakrishnan, said that his company preferred not to take long-term cover as the currency markets were getting more volatile. "Our policy of covering our net exposure for the next 3-6 months continues."

Infosys had taken a forward cover to the tune of $100 million and options for $210 million.

The company had also taken cover of $6 million each in euro and pound sterling, which it has enhanced further recently, Mr Balakrishnan said.

Meanwhile, the emergence of a strong euro is seen proving to be a natural hedge for Indian IT firms. "Today, Europe is growing faster and this gives us some kind of a natural hedge against any material decline in the dollar."

Though most of the European customers of the IT firms are billed in local currencies, their global customers in Europe prefer to get billed in dollar terms as they have a global balance sheet.

"We foresee further euro strength from the current levels," said Mr Mahalingam.

"Derivative instruments allow us to profit from upside in euro while simultaneously ensuring that we achieve our benchmark rate in the worst case."

TCS expects a positive revenue impact of approximately Rs 2 crore on a net basis for every 100 basis point increase in the euro.

Mr S.L. Narayanan, Corporate Vice-President (Finance), HCL Technologies, said that the company expects a 7.7 per cent impact (on topline of European operations) from a stronger euro.

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