The Indian Information Technology (IT) services industry is one that traditionally gets a boost from a depreciating rupee but the current weakening of the rupee may not yield meaningful benefits for the sector whose geographic mix and pricing dynamics have changed over the years.
The US dollar contributes over 60 per cent of the revenue for top tier IT firms and any fall in the rupee as against the dollar aids revenue and margins, however data shows an increasing diversification of IT firms across other markets such as Europe and Australia. Further, analysis of other currencies shows appreciation of rupee against GBP, euro, and Australian dollar in recent months. Both these changes are likely to even out gains made from a weakening rupee.
Data shows that share of USD currency in the revenue has declined in recent years for top IT firms. In case of TCS, this metric came down from 53.3 per cent as of March 2024 to 49.3 per cent as of September 2024. Similarly for Infosys, this declined from 66.2 per cent to 63.6 per cent in the same period. TCS has grown revenue share from Pound Sterling (GBP) and Euro during the period, while Infosys has grown Euro revenue. HCL Tech’s currency mix was not available and the currency mix of Wipro’s revenue has stayed flat in the period.
During the same period, in the last 3 months, the rupee has depreciated 1.1 per cent as against the dollar but appreciated 0.9 per cent and 4.2 per cent against the GBP and Euro respectively.
“The INR depreciation does provide some natural margin benefits to Indian IT players, however that benefit is generally limited,” Prashant Shukla, Vice President of research firm Everest Group, said. The forward hedging positions taken by IT service providers and the reverse movement of the rupee in terms of other currencies -GBP/INR and Euro/INR- are key reasons he cites. “In the ongoing cost savings environment, even the clients are prudent to negotiate a share of the currency benefit reaped by service providers – contractually or otherwise,” he added.
Gaurav Vasu, Founder and CEO of research firm UnearthInsight does not see any immediate impact of INR depreciation in the quarter ended December. UnearthInsight predicts that the top five IT firms could see roughly 20-30 BPS positive margin impact from CY25 onwards due to depreciation of rupee against USD and this could be marginally higher for tier-2 firms like Persistent and Mphasis, which have over 75 per cent dollar revenue. However, the rising cost of operations in delivery centre locations in India, Philippines and other countries due to inflation in these regions is also eating into margins, he added.