Though the rupee’s slump means a windfall for IT companies, most of whom are paid in dollars, do they stand to gain in the long-term is the question on everyone’s lips
The rupee’s fall vis-à-vis the US dollar is set to ring in a windfall for IT companies in the city and elsewhere in the State – at least in the second quarter between July-September. Industry observers say though the phenomenon would benefit the companies in the short-term, they have a word of caution on its potential for long-term damage.
Despite a power crisis and political uncertainty, the IT sector here has registered total revenues of Rs. 64,354 crore in financial year (FY) 2012-13, as against Rs. 53,246 in FY12.
“There will definitely be good results in the short-term for IT firms. But, things will get difficult down the line when the rupee fall continues and the cost of hiring IT workforce and managing offshore operations increase,” feels president of the FAPCCI Srinivas Ayyadevara.
Experts say frequent fluctuations of the rupee will not help IT companies even in the short-term.
“What we are seeing is a daily fluctuation of the rupee with respect to the dollar. If the rupee settles down for a longer time, then it will definitely have a positive impact. Not many IT companies here are excited about this fall because of its short-term nature, which leads to small gains,” says, vice-president of ItsAP Ramesh Loganathan. Since most IT companies here service clients from US and Europe, depreciation could only lead to bargaining, some observers feel.
“Established IT companies will easily recover amounts based on the current rupee rate. But what about small and medium IT companies who will have to deal with clients requesting for bargains?” FAPCCI’s IT division chairman Ashok Kr Kedia.
Industry experts say several IT companies in Hyderabad do forward cover (hedging) – the practice of entering into a contract with clients based on a fixed price of currency, arranged as a hedge against adverse exchange rate fluctuations. “Such companies will not be able to gain complete benefits of depreciation. There is also the question of expense of staff working in US, EU and other countries, which are based on US dollar, Euro etc. So, everything is not that rosy,” feels ITsAP’s secretary Bipin Chandra Pendyala.
Then there is the issue of companies facing tough times because they import hi-tech equipment from US and Europe. “We do buy good amount of equipment from the USA and we end up paying lot more money. It’s hard to pass this additional cost to our customers here in India as they don’t like seeing additional incremental cost,” says Vidteq.com founder T. Chandra Mohan Reddy.