The Hindu Business Line : IT sector cautious on Govt move to curb funds flow

Chennai/Mumbai/Bangalore/New Delhi, Aug. 12 The IT industry is guarded in its reaction on steps taken by the Government to fight rising rupee. Last week, the Government modified the external commercial borrowing (ECB) policy to modulate capital inflows.

ECBs above $20 million would be permitted only for foreign currency expenditure borrowers raising ECB more than $20 million would have to park the proceeds overseas. The aim is to curb the demand for rupee in exchange for dollar.

The Nasscom President, MrKiran Karnik, said: “We think that the move would have a positive impact on the industry. Keeping in view the sharp appreciation in the rupee, we feel such steps are justified.” .

However, some companies are sceptical about the new ECB norms. According to Mr Shiva Ramani, Co-Founder and CEO, Cybernet-SlashSupport (CSS), “While the move could lead to a reduction in inflows, inflows through FIIs and FDI will continue and this step will not lead to the arrest of rupee appreciation.”

He said the move could help reduce the volume of purchases made by the RBI to keep the rupee rising to a level above 40.3 and consequently keep inflation under check.

Mr V. Balakrishnan, CFO, Infosys, said, “The central bank has taken the right step to reduce the inflows due to ECBs. Last year, the country received around $25 billion and in the last one month it would have received around $5 billion. The Indian economy cannot absorb such a large infusion of external liquidity. There will be knee-jerk reaction in the currency markets due to this new rule but we have to wait and see how the rupee is going to behave in the medium to long term.”

As a result, currency-hedging policies of IT biggies may not change in the near term. Infosys intends to continue its coverage for exposure for two successive quarters while Wipro said that it would “continue to look at our strategy as and when required.”

Smaller companies too hold the view. Mr R.S. Desikan, Group CFO and Director-Finance, Mastek, said: “It is a knee-jerk reaction by the Government to curtail dollar inflows from the US. As there is a huge trade deficit in the US, the long-term chances are of the dollar further weakening.” He feels that companies have to look inwards to move to high margin work. “We won’t be changing our hedging policy as a result.”

Interestingly, if there is a rupee depreciation, companies see it as temporary and want to use the opportunity to hedge further.

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