IT Sector
Rupee move from the ~83 levels seen in previous years to 94 represents a massive ~13% depreciation.
This theoretically provides a substantial cushion to offset rising wage costs or pricing pressure.
Caveats:
1. Client Pressure: If the rupee stays weak for too long, global clients often demand "currency discounts" during contract renewals.
2. Hedging Losses: Companies use forward contracts to lock in exchange rates. If they hedged at 88 or 90, they won't feel the full benefit of 94 immediately; it will flow in as those old hedges expire.
Estimated margin gain is 35 bps per 1% fall.
A 10% depreciation brings on average 350 bps margin cushion.
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