Rupee depreciation: A mixed bag for IT sector

The depreciating rupee against the U.S. dollar is something less to cheer and more to worry for the Indian IT (information technology) industry. Its impact over a period, particularly in the backdrop of an anticipated inflationary cost pressure, is likely to cloud the short-term gains. “What's happening now on the rupee front will actually be a double whammy for the IT industry in the mediumterm,” says Sujit Sircar, CFO, iGATE. The inflationary conditions, he explains, will result in cost pressure for the IT companies. “Costs like travel and power will go up. Also, all import costs will impact our capital expenditure.” On the revenue front, there could be pricing pressure from clients if the depreciation of the rupee continues. If there is something heartening, it is on the immediate front, as every percentage dollar gain, according to Mr. Sircar, “results in a 25-30 basis points increase in our margins.” Cognizant's CFO Karen Mc Loughlin told a global conference organized last week by Jeffries that the company had an aggressive hedging programme. “We have about $3.7 billion in outstanding hedges of our rupee expenses which will mature each month through 2015 at an average rate of about 51.9,” she added. Therefore, the “swings in the rupee actually don't give us either as much benefit or pain, depending which way it's going,” she said.