A weakening rupee could mean a better quarter for Indian infotech firms as they get most of their revenue from software service exports. However, it depends on how the companies have hedged.
Ganesh Natarajan, CEO, Zensar Technologies, told Business Line , “Any company which generates a majority of its revenues in dollar- denominated markets will benefit if this sharp fall in rupee conversion rate continues. The only mitigating factor could be the hedging policies of some companies.”
If companies have taken an aggressive position on their hedging and have sold their dollars at a rate which is much below their current rate, then they would have a mark-to-market impact on their profit and loss account on the quantum of the hedges that are yet to crystallise. “A sudden weakening of the currency would have an immediate impact on the un-hedged portion of the foreign exchange, and the exact quantum of gain or loss would depend on the hedging strategy followed by each company,” said S. Balasubramaniam, Chief Financial Officer, Zensar Tech.
Pratibha Advani, CFO, NIIT Technologies, said the company has hedged at Rs 55 this quarter compared with Rs 54 in the last quarter and if any company hedges around Rs 55 or Rs 56, it is going to benefit from the move. “It gives boost to the margin in the long term. However, stability of rupee against the dollar is always beneficial to every company,” Advani said.
However, depreciation in the currency could lead to rise in input costs for mobile makers who see their margins being eroded due to expensive imports. Most handset makers said that they would be forced to increase the price of phones if the situation persisted.