IT cos hedge despite Re fall

IT cos hedge despite Re fall
N Shivapriya MUMBAI
INDIA’S software and business process outsourcing companies say they continue to hedge their foreign exchange inflows despite the rupee’s fall since the beginning of 2008 as they believe the local currency will keep rising in the long-term. Some companies, however, have cancelled a small number of hedging contracts to sell in the spot market, forex consultants said. The information technology industry had assumed that the rupee’s rise seen in 2007 will continue this year, but the currency has fallen 2.3% to 40.32 against the US dollar since January 1. This has taken the companies by surprise, because most of the dollar inflows, which account for more than half of India’s outsourcing revenue, have been hedged and hence won’t be able to gain from the fall. Infosys Technologies, for example, had assumed a conversion rate of Rs 39.41 against the dollar in its March quarter guidance. Similarly, Satyam Computer Services had based its outlook for March 2008 on an exchange rate of Rs 39.30. “We take a short-term view on the currency rather than a longterm view,” Infosys chief financial officer V Balakrishnan told ET. “The currency markets globally are very volatile and there is no point in taking a long-term view in a volatile environment. We only hedge our exposures and do not trade or speculate. We will increase or decrease our hedges depending on the movements. The current level of the rupee is at an attractive level for the exporters to hedge.” Satyam CFO V Srinivas said: “The movement of the rupee has largely been sideways in the fourth quarter. Every 1% depreciation in the rupee will impact Ebitda margins by about 30 basis points. There is no change in our hedging policy because of this — in the longterm we expect the rupee to strengthen.” Analysts said the fall in rupee would provide temporary relief to IT companies that are facing softening of demand in the US market, which contributes over 50% of their revenues and in some cases, even 60-70%. “In general, every 1% fall in the rupee could lead to 30 bps to 50 bps expansion in Ebitda. Look at how software companies gained in the second quarter of fiscal 2007, when the rupee had gone up to Rs 45 levels,” said Harit Shah, analyst, Angel Broking. n.shivapriya@timesgroup.com