Infosys sees margin impact due to rupee fall

Rupee fall would be an advantage for software exporters but the bigger focus would be the shape of policies under Trump's presidency

Pravin Rao, operations head at information technology services major Infosys, said the  sharp fall of the rupee against the dollar would impact the company's margin (ratio of revenues to expenses). 

The rupee closed at 68.73 against the dollar on Thursday, a 39-month low. The dollar is rising as institutions shift their reserves on the promise of President-elect Donald Trump to promote local investments.

“Obviously, the rupee fall will have an impact from a margin perspective. We will have to wait and see, as it is a recent development,” Rao told this newspaper. 

“When such a thing happens, it becomes advantageous for some and negative for some.”

The fall would be an advantage for software exporters such as Infosys but the bigger focus would be the shape of policies under Trump. He won on an anti-immigration and outsourcing wave, and a promise to boost local jobs.

“For our sector, the biggest thing is Trump’s directions, whether he strengthens the dollar, and would that have an impact on other currencies,” Rao said.

“Short-term fluctuations in valuation of rupee are not expected to have any major impact on performance of the IT industry. A stable currency is imperative for determining a long-term impact on the industry,” said a spokesperson at Nasscom, the software sector’s lobby. 

Sectors that have huge imports would be affected as prices would become more expensive. 

“Fertiliser and consumer durables are sectors with prominent negative sensitivity. A 1% rupee depreciation would reduce the absolute Ebitda (operating earnings) of corporates in the fertiliser sector (highly import-dependent) by 2% and shave 0.37% of operating profit for the consumer durables sector,” said Indian Ratings & Research, in a report on dollarisation of corporate borrowers last year. It listed Zuari Agro Chemicals, Fertilisers & Chemicals Travancore and Coromandel International among those which would get hit.   

While fertiliser companies import potash, consumer durables entities import high-end steel and commodities such as zinc, priced in dollars. A depreciating rupee will increase their input cost negatively. 

“I expect the rupee to fall to 70 a dollar, as the US economy is picking up pace and President-elect Donald Trump is taking a U-turn on most of his election promises that concerned businesses. Companies with high dollar debt and without any natural hedge in terms of exports and forward cover might suffer,” said Prabal Banerjee, finance head at the Bajaj group.