Thursday, July 12, 2007

Countering the Rising Rupee

With the rupee breaching the 9 year high against the US dollar yesterday by appreciating to 40.23 a dollar, Indian exporters have started frantic efforts to kick off counter measures that can sustain their eroding margins. More so for the Indian IT industry that clocked exports worth $31.4 billion for the fiscal 2006-07.

So what are the top 3 players in the Indian IT industry doing to weather the seemingly 'here-to-stay' storm.

Short term firefighting
  1. Forex Hedging Gains
    TCS, the number one IT services provides in India, according to analysts, has shown how hedging can help during times like these. While Infosys, the Indian IT bell weather registered a 300 basis point decrease in operating margins (A 1% rise in the rupee against the dollar affects operating margins by 30 to 50 basis points.), TCS maintained its previous quarter performance. TCS had about $2.5 billion outstanding in hedges on June 30.
  2. Lower Provisioning of Taxes
    Declaring lower amounts to be set aside as payable to the tax man at the end of the fiscal is one way in which quarterly gains can be boosted.
  3. Lower wage hikes
    Wage hikes are definitely poised to take a hit. India's IT exporters are now walking the tightrope between escalating wages and the appreciating rupee, not to speak of demanding clients.
  4. Lobby with the government to intervene to halt the appreciating rupee
Long term adaption
  1. Increase services to emerging markets in Gulf and Asia
    Top IT companies in India differ in terms of their diversity of client geographies. While the US contributes to 63% of Infosys's revenues, TCS has diversified revenue sources ranging from US, Europe, Gulf and even the Indian domestic sector
  2. Fill up previously less lucrative spaces like 'Assurance services' in emerging market
    Domestic testing or 'assurance services', an IT service market at the lower end of the spectrum that the big players couldn't care less about all these years, now has got back their attention. This will lead to some serious competition in the domestic market as the big players prepare to channelize their resources into newer



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