The Hindu Business Line : IT stocks take a beating on strong rupee

Mumbai March 28 Information Technology (IT) shares fell sharply on Wednesday, with the rupee touching an eight-year high against the dollar at 43.04/.05.

A strong rupee adversely impacts the profits of IT companies (they earn less rupees against every dollar earned) and may affect their sales targets.

The rupee today ended at 43.04/05 against the US currency as banks stepped up dollar sales to generate rupee funds to tide over a cash crunch in the money market, dealers said.

Market analysts believe if the rupee continues to rule strong, IT companies will be forced to revisit the guidance they had given for the next quarter (first half 2007-08).

Most Indian IT companies had pegged next year's estimated earnings based on the rupee hovering around the 45-mark to the dollar. They might even have to give a conservative guidance for the year ending March 31, 2008, said Mr Harit Shah, Research Analyst, Angel Broking

"One per cent change in the rupee will hit the operating margins of IT companies for FY08 by 30-50 basis points," said Mr Shah. It is imperative that bottom lines will be affected as the IT sector earns over 60 per cent of its revenues in foreign exchange, said Mr Krupal Maniar, Research Associate-IT, Emkay Share and Stock Brokers.

Re to remain firm

Currency dealers expect the rupee to firm further and that could place IT stocks under selling pressure over the next few days.

The IT industry is eyeing turnover of $31 billion from software exports for the fiscal ending March 2007.

Shares of Infosys Technologies, the second most heavily weighted stock on Sensex, was down 3.15 per cent to Rs 1,992.3 while Wipro slid 4.77 per cent to Rs 558.2; TCS went down Rs 4.78 per cent to 1,201.

The BSE IT index fell 3.54 per cent or 177.57 points to close at 4,831.85 points as nine of the ten benchmark IT stocks recorded loses.

A crisis in the US mortgage sector, which issues mortgages to high-risk borrowers, has raised concerns over the working of the US economy.

"The weak consumer confidence report has raised concerns of a slowdown in the US which is the place to land for Indian IT companies," added another IT analyst.

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