The Hindu Business Line : ITES cos unperturbed by rupee rise against euro

Chennai, Aug. 13 The Rupee has appreciated about 8 per cent against the euro in the last month to touch Rs 63.46 to a euro today compared to about Rs 68.17 a month ago. While this could theoretically make life difficult for Indian exporters to the Euro Zone, Indian IT services companies seem unruffled by the development.

Most feel that this is a temporary blip, caused by the slide in oil prices, since other facets of the US economy continue to remain sluggish. Also, since most European revenues for such companies come from Britain, the Rupee-Pound relationship is viewed with equal concern.

According to Mr N. Ramachandran, CFO, Nasdaq-listed iGATE Corporation, which has a good chunk of its manpower in India, “Nothing fundamental has changed. In the US, unemployment is steadily worsening and retail buying confidence has not improved.” This stems from the view that the Rupee is reacting to the appreciation of the US dollar appreciating against the euro.

He pegs the appreciating dollar, against the euro, predominantly to the fall in the price of crude oil. He expects the euro to be stronger in the near term. The rise of the rupee against pound Sterling is more a cause for alarm for some CFOs, than the euro’s behaviour is.

Mr Sonjoy Anand, CFO, Tech Mahindra, a player in the telecom software market, said, “Less than five per cent of our overall billing is euro denominated. I would rather be concerned about the rupee’s appreciation against the pound. For, every one percentage rise in the Indian rupee (against the pound) impacts my margins by 40-45 basis points.”

According to him, if the rupee continued to appreciate against the pound, then “there will be a negative impact on our margins for the quarter.”

The rupee has risen 5.2 per cent to touch Rs 80.62 to the pound from Rs 84.81 a month ago.

A senior official from Satyam Computers said that it hedges about $700 million against currency fluctuations. Of this, about 10 per cent is to do with the Euro. He added that most IT companies continue to bill some European contracts in US dollars. Euro billings, typically, hover between 7 per cent and 10 per cent of revenues. “If the rupee’s appreciation against the euro continues, we might have to marginally increase our hedge cushion against the euro.”

Some others, such as MindTree Consulting, are still in a wait-and-watch mode. Mr Rostow Ravanan, Chief Financial Officer, said that since there is no rupee-euro conversion possible at reasonable rates, the euro is converted first into the dollar and then to the rupee.

Since volatility exists on both legs of the transaction, companies would find it difficult to predict what would happen. And since it has only been a month since the rise of the rupee against the euro, the company is yet to take a call on the course of action. After all, over a one-year term, the rupee has depreciated against the euro by about 13 per cent.

Most companies hedge their risks against the Euro movement as much as they have done against the dollar. NIIT Technologies for instance hedges close to 40 per cent of euro earnings. According to Mr Arvind Thakur, CEO and Joint Managing Director of NIIT Technologies, “We have taken Options to protect ourselves from the movement of the Rupee against the Euro to a certain extent.”

A spokesperson for Tata Consultancy Services said that ‘only’ 10 per cent of revenues come from the Euro Zone. “We hedge in multiple currencies, while the US dollar is the major hedging currency we also have hedges against the pound and the euro.”

Bankers’ view

Are bankers seeing frenzied action from companies to correct course? First off, they are quick to correct us on the semantics. “It is not that the rupee has appreciated. The euro has depreciated against the dollar owing to a host of concerns, including more bad news expected from some banks and the lower growth expectations among Euro zone countries.”

Are they seeing any queues of exporters rushing to buy protection against the rising rupee/depreciating euro? A treasury official with a public sector bank did not see that happening yet. He did, however, point out that when the rupee appreciated strongly against the dollar, exporters did book forward contracts to protect their revenues.

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