Software sector braces for currency correction
News | 12 Mar 2015
10-14% depreciation in major currencies since last April After TCS and Mindtree set the alarm bells ringing with their cautionary outlook, exporters in the $130-billion sector are bracing for currency volatility, as global currencies have depreciated sharply against the dollar in the recent past. Major global currencies like the euro, pound, yen and Australian dollar have all depreciated in the range of 10-18 per cent between from April last year till now, said analysts. IT exporters will report their fourth quarter and yearly results from April. “Currency volatility will impact US dollar revenues of top tier IT exporters around 4.5–6 percentage points,” said Shashi Bhusan, analyst with Prabhudas Lilladher. These concerns were voiced in a conference call with analysts, when TCS CFO Rajesh Gopinathan indicated that Q4 will be a sluggish quarter mainly due to currency volatility but added that this trend is in line with the same period last year. This resulted in the company getting downgraded by brokerages, something which has not happened for a while. According to a Kotak Institutional Equities report, the drag on revenue growth for the quarter is from insurance, Diligenta (its subsidiary) and the energy vertical.
Revenues from telecom will be muted, the report added. Similarly, Bengaluru-based Mindtree has said it may report a marginal fall in revenue growth due to continued depreciation of currencies against the dollar and delay in project commencement. “We expected cross currency movement to impact companies but there is no cause of concern yet,” said Sarabjit Kour Nangra, IT analyst with Angel Broking. Other IT majors such as Wipro and HCL will also be impacted by currency headwinds and slowdown in verticals such as energy and utilities. The slowdown can also be attributed to the decline in demand for IT services from sectors such as telecom, insurance and energy, said Sanchit Vir Gogia, Analyst, Greyhound Research. For Mindtree, this decline could be 1.8 per cent in Q4 when compared to Q3, said Bhusan. However, other companies believe there is nothing in the outsourcing environment to cause concern. According to Ganesh Natarajan, Vice-Chairman and CEO, Zensar Technologies, commentary from the larger companies could be related to client specific issues. “Cross currency movements will impact companies with a larger European exposure,” he added. According to Nasscom, the Indian IT industry is expected to grow 12-14 per cent next fiscal.