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Moumita Bakshi Chatterjee

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New Delhi, June 22 Depreciation of the rupee against the greenback and the one-year breather on STPI scheme, has thrown the spotlight back on tech ADRs. The ADRs of most Indian IT services and BPO firms (including Infosys, Wipro, Satyam and Genpact) have outperformed the benchmark Nasdaq and NYSE since the beginning of the financial year 2009, posting gains in the range of 2.5-18.3 per cent, between April 1 and June 20.

The ADR of Infosys Technologies gave 18.38 per cent return between April 1, 2008 and June 20, 2008 on Nasdaq; while Wipro ADR surged 2.54 per cent and Satyam Computer Services 4.39 per cent on NYSE. Patni Computer Systems, however, bucked the trend with its ADR tanking 9 per cent to end at $11.05 on June 20, 2008.

“The year 2008 had started with too much pessimism on Indian IT companies, and the valuations were at a historic low. However, Infosys’ guidance has restored investor faith in the sector. That, combined with the weakness of the local currency has brought sheen back to Indian ADRs,” said a Mumbai based analyst.

The rupee has depreciated nearly 7 per cent against the dollar since April this year, spelling relief for the export-led Indian IT services industry — every 1 per cent depreciation in the rupee positively impacts the operating margins by almost 30-basis points. Another factor that augured well for IT and ITES companies back home was the extension of tax sops available to companies under the Software Technology Parks of India (STPI) scheme up to March 31, 2010. The original sunset clause — earlier slated to lapse on March 31, 2009 — would have hit the earnings of companies the following year, by raising the tax outgo to almost 22 per cent from about 12-15 per cent, depending on operational structure of individual firms. “The extension announced by the Government has given IT and BPO companies additional time to establish operations in an SEZ, and we expect the earnings in fiscal 2011 to be strong,” point out industry observers.

Amongst the BPO pack, Genpact and WNS posted handsome returns for investors, during the period in reference. Genpact scrip rose 14.2 per cent; and WNS ended up with 6.1 per cent gains. However, EXL ADR shed almost 31.7 per cent during the same period.

When contacted, global IT research and advisory company Gartner declined to comment on the ADR movement, but pointed out that clients are increasingly seeing value of outsourcing, or engaging with an external service provider.

“Value could range from substantial cost savings, using sophisticated technology that requires higher skill base, leveraging service providers’ expertise to bring in efficiency, enhancement and transformation, bring in organisational agility and make business impact. Companies have also gained confidence and realised the benefits of offshore outsourcing. Outsourcing is on the rise and this goes to show there is ample room still left for service providers to grow by tapping the opportunity,” said Mr Arup Roy, Senior Research Analyst, Gartner.

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