Rising rupee troubles India's tech industry

Thursday, 22 May 2003, 07:00 Hrs
Printer Print Email Email
Already reeling under severe billing pressure and a cut back in order by overseas clients, the rising rupee is likely to inflict more pains to India's high-profile technology industry.

NEW DELHI: Analysts say the unabated rise in the value of the Indian rupee against the U.S. dollar will badly pinch the earnings of the export-oriented Indian software makers in the current fiscal year.

The rupee opened stronger at 46.81/83 levels against the dollar Thursday after ending at a two-year high of 46.90/91 in the previous session. In the intra-day trade Wednesday it soared to a high of 46.75.

"Earnings of top software companies will definitely be pressured by the rupee's strength in the current fiscal year," said Neeraj Deewan, a senior analyst with New Delhi-based Quantum Securities.

"Most of the top Indian software makers on an average earn 70 percent of their annual revenue from the U.S. So, the sharp rise in the value of rupee will badly hit their export earnings," Deewan told IANS.

"Since the rise in rupee comes close on the heels of a spate of full-year earnings results that indicated the end of a decade of heady growth, it is definitely going to further dampen the investor faith in tech stocks."

The National Association of Software and Service Companies (Nasscom), India's premier IT industry umbrella group, admitted that the rising value of the rupee would have an impact on growth of Indian IT industry this year.

"In 2002, the Indian IT industry grew by 28 percent. This year, due to a rising rupee and other factors, the growth of the industry will be impacted slightly," said Kiran Karnik, president of Nasscom.

"We will come out with detailed projections for 2003 within the next 10 days."

India's IT exports, including software development and services businesses, are estimated to have grown nearly 26 percent in the year ended Mach 31, 2003, down from a projected 30 percent growth due to the rupee appreciation.

After logging a year-on-year growth of over 50 percent on an average in the five years up to March 31, 2001, Indian software and services exports have slowed down significantly in the recent years.

In 2001-02, the software exports logged a growth of 29 percent to $7 billion as the clients in the U.S., India's prime software export destination, cut back orders.

According to analysts, the rupee is still undervalued, despite a sharp four percent appreciation in the rupee from the end of May 2002.

"Despite the strengthening of the rupee in the last few months, it is still undervalued by about 2.5 percent due to the dollar's bigger fall against other currencies," said a foreign exchange dealer.

"Globally, all major currencies are strengthening against the U.S. and I don't expect the trend to reverse any time soon. The rise in rupee value should also continue for some time unless the Reserve Bank intervenes strongly."

The Reserve Bank of India has said that it was "rather comfortable" with the appreciation of the rupee against the dollar, which it feels had been adequate following the currency alignments taking place internationally.

Dealers said that the rupee has gained strength in the domestic market by larges-scale foreign fund inflows.

Stocks of blue-chip software companies such as Infosys Technologies, India's largest listed software exporter, and Hyderabad-based Satyam Computer Services have come under sharp selling pressure in recent trade.

"Investors are rushing to pare their exposure on heavyweight technology counters on fears that the dollar's fall will add to the software companies earning woes in the current year," said Deewan.
Source: IANS

Wipro opens third industrial
IT major Wipro Ltd on Thursday opened its centre of excellence for Industrial Internet of Things (..
Google's Gboard gets offline
Google is adding an Artificially Intelligent (AI) offline dictation feature on its Gboard keyb..
IBM announces programme
n a bid to recognise the contribution of developers in the open source community, Information ..
Facebook denies cyber attack
Facebook ruled out a cyber attack on its products Whatsapp, Instagram and Messenger, which suf..