Rising rupee hits Indian software makers
Tuesday, 3 July 2007
BANGALORE, July 2 (AFP): Indian software makers are throwing up their hands in despair as the rupee's unbridled surge cuts into the earnings of a 50-billion-dollar industry that makes two-thirds of its revenue in US dollars.
Infosys Technologies, India's second-largest software exporter, said in April that its calculations were based on an exchange rate of 43.10 rupees to the dollar. Mindtree Consulting, a mid-sized firm, put the rupee at 42.3.
Both were way off the mark, beaten by the vagaries of a currency market that had by Friday pushed the rupee to 40.7 per dollar, up almost 10 per cent since the start of the year and 14 per cent in the past 12 months.
The impact of the falling dollar will be evident when the country's information technology companies report their fiscal first-quarter earnings later this month.
"You can't beat the market," said Krishnakumar Natarajan, president and chief executive officer of IT services at Mindtree, which is based in India's southern high-tech hub of Bangalore.
"There's no scientific basis on which you can predict foreign exchange rates."
The company, with sales of more than 100 million dollars last year, earns 62 per cent of its revenue from US clients including rental-car giant Avis. It typically hedges half its dollar- denominated revenue in the forward and futures markets.
For Mindtree, which is trying to strengthen its operations in Europe and the Asia-Pacific including Japan and Australia, the US market is still growing at an annual pace of 40 per cent.
The National Association of Software and Services Companies, or NASSCOM, has estimated India's software exports at 31 billion dollars for the year ended March.
At India's three largest software companies, net foreign exchange earnings make up 51 per cent of sales at Tata Consultancy, 56 per cent at Infosys and 35 per cent at Wipro.
Software exporters have been counting on the central bank to intervene to stem the rupee's rise, but the Reserve Bank of India (RBI) has adopted a hands-off policy as it seeks to wrestle down inflation.
Letting the rupee rise has made imports less expensive, cushioning the impact of strong fuel prices for India, which relies heavily on imported oil priced in dollars.
Infosys Technologies, India's second-largest software exporter, said in April that its calculations were based on an exchange rate of 43.10 rupees to the dollar. Mindtree Consulting, a mid-sized firm, put the rupee at 42.3.
Both were way off the mark, beaten by the vagaries of a currency market that had by Friday pushed the rupee to 40.7 per dollar, up almost 10 per cent since the start of the year and 14 per cent in the past 12 months.
The impact of the falling dollar will be evident when the country's information technology companies report their fiscal first-quarter earnings later this month.
"You can't beat the market," said Krishnakumar Natarajan, president and chief executive officer of IT services at Mindtree, which is based in India's southern high-tech hub of Bangalore.
"There's no scientific basis on which you can predict foreign exchange rates."
The company, with sales of more than 100 million dollars last year, earns 62 per cent of its revenue from US clients including rental-car giant Avis. It typically hedges half its dollar- denominated revenue in the forward and futures markets.
For Mindtree, which is trying to strengthen its operations in Europe and the Asia-Pacific including Japan and Australia, the US market is still growing at an annual pace of 40 per cent.
The National Association of Software and Services Companies, or NASSCOM, has estimated India's software exports at 31 billion dollars for the year ended March.
At India's three largest software companies, net foreign exchange earnings make up 51 per cent of sales at Tata Consultancy, 56 per cent at Infosys and 35 per cent at Wipro.
Software exporters have been counting on the central bank to intervene to stem the rupee's rise, but the Reserve Bank of India (RBI) has adopted a hands-off policy as it seeks to wrestle down inflation.
Letting the rupee rise has made imports less expensive, cushioning the impact of strong fuel prices for India, which relies heavily on imported oil priced in dollars.