IT companies the clear winner in rupee fall

The sharp fall in the rupee’s value against the dollar will exert pressure on oil marketing companies and those in the steel, non-ferrous metal and fertiliser sectors. On the other hand, it will benefit information technology services, pharmaceuticals and textiles.

The three state-owned oil marketing companies — Indian Oil, Hindustan Petroleum and Bharat Petroleum — which import crude oil to supplement their small amounts of domestic production, are expected to be hit the most. These three collectively accounted for almost a third of total net imports by listed entities.

According to a Moody’s Investor Service report, IT firms deriving revenues from exports and having a rupee-denominated cost base benefit from a depreciated currency. “Among the top three, Infosys would be the biggest beneficiary, given that its hedging (for dollar receivables) is lower than that of TCS and Wipro,” says Sanjeev Hota, who tracks the IT sector at retail brokerage firm Sharekhan.

 

By the end of the September quarter, Infosys had hedged receivables worth just $742 million (0.4 per cent of September quarter revenues). This is very low, compared to $2,991 million in the case of TCS and $1,739 million for Wipro. Analysts say higher hedged positions will lead firms to report higher mark-to-market (MTM, writing down assets to current values) losses in the coming quarter, and effectively take away a part of their gains in revenue.

Apart from exporters, companies wherein a large share of their revenues (as much as 70 per cent) is generated from abroad through their subsidiaries could also gain. For instance, Hindalco could gain as its foreign arm, Novelis, works on fixed margins (conversion margins) of $300 per tonne and the company is not having much of foreign currency debt, says Ravindra Deshpande, who tracks the metals sector at Elara Capital.

On the flip side, around 40 companies, including Renuka Sugars, Coromandel International, Gujarat NRE Coke, Opto Circuits and Bhushan Steel, from the BSE-500 list import to the extent of a third of their revenues and could face the heat. The actual impact would depend on their ability to absorb/pass on any increase in costs.