IT stocks go up as rupee declines

IMPACT OF THE DEPRECIATING RUPEE

The falling Indian rupee, which hit a 17-month low at Rs 44 to the US dollar, spelt good news for Indian information technology (IT) firms.

Every percentage fall in the rupee adds between 30 and 50 basis points (bps) to the operating margins of IT firms and the fact was not lost on investors. The stocks of major IT firms like Tata Consultancy Services (TCS), Satyam Computer Services, Wipro and HCL Technologies were up almost 2 per cent each.

The IT sector index, too, was up 0.86 per cent at the close of today’s trading on the BSE. Infosys Technologies was the only IT major to give up gains of over 2 per cent to close 1.7 per cent down at the close of trading.

But that was due to reports from a London-based securities house, which said it could face a counter-bid to acquire Britain’s Axon Group. In the last one month – since July 1 to August 26, 2008, — the Indian rupee has depreciated by 1.5 per cent. It was pegged at Rs 43.33 to a dollar at the beginning of July 2008 and today touched an intraday high of Rs 44.

Share of Satyam Computer Services zoomed 3.25 per cent, Wipro and HCL Technologies, and Tata Consultancy Services (TCS) were up by 2.14, 2.77 and 1.77 per cent respectively. Only the Infosys stock was down 0.32 per cent.

Analysts feel that the depreciating rupee will have an immediate positive impact on the quarter results of IT firms. “This will have a positive impact on the revenues. But it is time that these firms should rethink on their hedging strategy,” says a market expert. Firms like HCL Tech that have hedged more may not get the full benefit of a falling rupee.