The Hindu Business Line : IT’s rupee strategy

With the rupee on an overdrive, Indian BPO (business process outsourcing) companies are rethinking their strategies because, as exporters of services, these companies earn their revenues predominantly in dollars.

“The Indian rupee (INR) is on a rising curve. It has risen to 39.85 against the US dollar in recent times,” observes Mr Pradeep Udhas, Global Partner-in-charge, Sourcing Advisory, KPMG. “It has been estimated that with every 1 per cent appreciation in the INR the effective decline in OPM (operational margin) is almost to the tune of 40-50 basis points.” The rising rupee has become a major cause for concern among Indian ITES (information technology enabled services) and BPO firms, especially the smaller ones, which are not adequately hedged, and are likely to get significantly affected, fears Mr Udhas, in an email interaction with Business Line.

Excerpts from a brief interview:

What have been the strategies adopted by Indian companies?

Essentially three things: Hedging, pricing, and diversification.

On hedging currency risk.

Almost all Indian companies have started hedging their currency positions. Hardly any of these would be keeping the dollar exposure unhedged. Some companies park a part of their dollar deposits abroad, so as to avoid the risk of currency movements.

On pricing.

IT companies have been increasing billing rates over the last few quarters. Companies are trying to bring in efficiency in various ways to mitigate the impact. The improvement in billing rates can offset some of the currency impact. More importantly, new clients are coming in at higher price points. This may be difficult as the local companies are not affected by this trend and compete very well with the global delivery capabilities of the Indian companies — as there is very little to differentiate in “body shopping” market.

On client diversification across geographies.

Indian IT/ITES companies have started diversifying globally in order to reduce their exposure to the US market. For instance, the big five Indian IT companies, which derive about 70 per cent of their revenues from the US, have now started focusing on Europe in a big way.

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