www.rupeedesk.in
Despite concerns over the US immigration bill, stocks of major information technology companies are seen rangebound with a positive bias in the coming five sessions as a weak rupee is likely to benefit these companies in the short term. For the Indian IT sector, which has been bogged down by concerns over the US immigration bill, lower growth, salary hikes, and higher visa costs, the rupee depreciation could prove to be a silver lining. Since the beginning of the current financial year, the Indian currency has tumbled over 8% against the dollar. Rupee depreciation improves the competitiveness of Indian IT services companies. In particular, it will enable vendors to enhance win rates in infrastructure management services-based deals. Margin pressure exerted by these deals can be offset by gains from a weaker rupee. We expect Indian IT companies' 1QFY2014 (Apr-Jun) margins to benefit by ~80-130bp (basis points) on account of the rupee's recent fall.
The rupee breached the 60-per-dollar level on Jun 26, falling to a record low of 60.75 a dollar, weighed down by dollar purchases of crude oil importers. Lack of support from the Reserve Bank of India near the psychologically crucial level triggered stop losses by banks, exacerbating the rupee's losses. The rupee yesterday ended at 60.2200 a dollar versus 60.1300 on Thursday. However, the US immigration bill remains a major concern for IT companies. We feel that the proposed immigration reforms in the US will likely have negative ramifications not only in terms of costs, but also with regards to revenues.
Apart from increasing salaries for employees on H1B visas and increased charges for H1B visas $10,000 fees for every additional worker on visa over the 50% limit the proposed bill will necessitate increased local hiring by offshore technology companies, thereby increasing average onsite costs. In the next few trading sessions, analysts and investors will eye Infosys as it prepares to announce its Apr-Jun results on Jul 12.
Despite concerns over the US immigration bill, stocks of major information technology companies are seen rangebound with a positive bias in the coming five sessions as a weak rupee is likely to benefit these companies in the short term. For the Indian IT sector, which has been bogged down by concerns over the US immigration bill, lower growth, salary hikes, and higher visa costs, the rupee depreciation could prove to be a silver lining. Since the beginning of the current financial year, the Indian currency has tumbled over 8% against the dollar. Rupee depreciation improves the competitiveness of Indian IT services companies. In particular, it will enable vendors to enhance win rates in infrastructure management services-based deals. Margin pressure exerted by these deals can be offset by gains from a weaker rupee. We expect Indian IT companies' 1QFY2014 (Apr-Jun) margins to benefit by ~80-130bp (basis points) on account of the rupee's recent fall.
The rupee breached the 60-per-dollar level on Jun 26, falling to a record low of 60.75 a dollar, weighed down by dollar purchases of crude oil importers. Lack of support from the Reserve Bank of India near the psychologically crucial level triggered stop losses by banks, exacerbating the rupee's losses. The rupee yesterday ended at 60.2200 a dollar versus 60.1300 on Thursday. However, the US immigration bill remains a major concern for IT companies. We feel that the proposed immigration reforms in the US will likely have negative ramifications not only in terms of costs, but also with regards to revenues.
Apart from increasing salaries for employees on H1B visas and increased charges for H1B visas $10,000 fees for every additional worker on visa over the 50% limit the proposed bill will necessitate increased local hiring by offshore technology companies, thereby increasing average onsite costs. In the next few trading sessions, analysts and investors will eye Infosys as it prepares to announce its Apr-Jun results on Jul 12.
