The Hindu Business Line : Rising rupee brings down BSE IT Index

Mumbai May 29 While BSE Sensex has been on a rising spree for the major part of the current quarter, the rising rupee has caused the information technology benchmark BSE IT Index to steadily lose ground. The IT Index has been proportionally falling with the rising rupee to shed about 242.13 points or 4.9 per cent to 4908.15 on Tuesday from 5,150.28 recorded on April 16 this year.

In the same period, the rupee, which has gained more than 8 per cent against the dollar to be Asia's best-performing currency, appreciated by 159 basis points or 3.77 per cent to 40.5 from 42.09.

As on May 29, Sensex has gone up by about 6 per cent in this period to 14508.21 from 13695.58.

A rising rupee has a negative impact on the margins of Indian IT companies as more than 70 per cent of their earnings are in dollar terms. For IT companies, a 159 basis point rise in the rupee will have a 70-80 basis points impact on EBITDA margins for the June quarter, according to Mr Harit Shah, Research Analyst, Angel Broking.

IT stocks hit

In the case of IT stocks, the markets have being looking only at the rising rupee in the last three months, according to Mr Sanjeev Hota, IT Analyst, Emkay Share and Stock Brokers. "If the rupee comes to 39 levels, the market presumes that the earnings for the current quarter will be eroded by 2-3 per cent," added Mr Hota.

Moreover, all major IT companies have downgraded their rupee guidance for the forthcoming quarter, which is again a negative trigger for the markets.

Though the top 3 IT companies have a strong hedging policy in place, the market has been hammering their stocks. From April 16, the stock of Infosys Technologies has been the biggest loser, shedding 8.3 from 2128.3 to 1951.6 on Tuesday.

TCS and Wipro Technologies have also been laggards, down by 8 per cent and 3.8 per cent respectively. TCS has hedged its dollar earnings for $1 billion, protecting itself at Rs 43.5 to the dollar, while Infosys and Wipro have hedged for $ 470 million and $ 600 million respectively.

Analysts are also divided on whether it is the right time high time that Indian IT companies work around the strength of the rupee; by adding clauses in the outsourcing contracts they have with their US-based clients.

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