Shutterstock photo
Markets

Weak rupee looks positive for Indian IT (INFY, WIT, ICN)

Shutterstock photo

Shutterstock photo

The declining Indian rupee is wreaking havoc with farmers, but analysts at Ambit Capital predict "clear short-term benefits" for the Indian IT sector, including Infosys ( INFY , quote ) and Wipro ( WIT , quote ).

Analysts Ankur Rudra and Hardik Shah say that as a rule of thumb, every 1% drop in the rupee ( ICN , quote ) leads to a 2% gain in IT company earnings, "all else being equal on an unhedged basis."

How much a company can gain depends on how much of its revenues are unhedged.

Rudra and Shah say that INFY is among the least hedged (40% - 45% of quarterly revenues) and will benefit the most.

WIT is much more hedged (95% - 110% of quarterly revenues) and will benefit the least.

While the slide in the rupee provides the IT industry with a cushion to profit margins, Rudra and Shah stress that the relationship is complicated by other factors.

IT companies may have to cut billing rates to their clients, reducing revenues in the long term.

There is also a negative correlation between changes in the exchange rate and IT company stock prices. Those short-term benefits may just be a flash in the pan.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Other Topics

Stocks

Latest Markets Videos