Dollar's slide may help IT add 70–300 basis points to Q1 revenues
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Currency is set to overshadow volumes as growth drivers in the June-quarter toplines at Indian tech powerhouses, with a falling dollar giving the anticipated tepid sales some much-needed ballast amid an evident revenue slack in the industry's traditional money spinners either side of the Atlantic.A retreat for the dollar, which gives the rupee a tailwind, should boost Indian tech revenues by 70-300 basis points in the June quarter, analysts said.One basis point is a hundredth of a percentage point.The currency impact cited above, therefore, should expand revenues by 0.7 to 3 percentage points.During the April-June quarter, most major currencies have appreciated on average versus the US Dollar (USD). For instance, the Indian Rupee (INR) appreciated 1%, the Pound Sterling (GBP) 6.2%, the Euro (EUR) 8%, the Australian Dollar (AUD) 2.6% and the Japanese Yen (JPY) grew 5.5%.A weak dollar against a basket of currencies will lead to 100-200 bps of on-quarter cross-currency tailwinds, Motilal Oswal said in a report. HSBC Global Research estimates the impact to range between 80-450 basis points. These movements are higher for companies with greater exposure to EUR, GBP and JPY such as Tata Consultancy Services (TCS), HCL Technologies Coforge , KPIT, data from Kotak Institutional Equities showed.Currency movements are crucial because Indian IT firms earn a large share of their revenues in foreign currencies but spend in INR -- most of it on employee wages in India. Typically, a stronger dollar helps gain more revenues as most IT majors' over 40-50% revenue comes from the US. However, when the dollar weakens against other currencies such as GBP, EUR, or JPY, revenues earned in those regions helps boost the reported toplines in rupees.For instance, India's largest software service provider, TCS, has the least dollar dependency among tier-1 companies and derives 50% of its revenues from non-USD currencies. It is expected to net a 211 basis points revenue upside in the second quarter of the ongoing fiscal. The maximum positive impact could be recorded by mid-sized firm KPIT at 299 basis points because it derives a substantial 72% of its revenues from non-USD markets, data by Kotak Institutional Equities showed."During the quarter, the Indian rupee has appreciated around 1% against the dollar which typically is not beneficial for exporters,' said Sumit Pokharna, IT analyst with Kotak Securities. 'However, the rupee has depreciated against other currencies in the 2.5-8% range. This is providing tailwinds for software services exporters on the US$ revenue growth from the previous quarter.'He added that tighter controls by companies on travel costs and hikes and some pulling back on compensation, will aid margins stability for large IT companies while expansion for select mid IT companies.However, at a time when discretionary spending remains muted, and deal closure timelines are elongated, the exposure to other currencies is helping IT firms, Pokharna explained.On the flip side, companies like Persistent Systems and Mphasis, which have among the highest exposure to the US at 85% and 82%, respectively, the sequential benefit of the currency movement will be contained at 69 basis points and 75 basis points, respectively.
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