Rupee appreciation a threat to IT industry

The rupee appreciation against the dollar during the last three months has sent alarm bells ringing in the information technology industry. Every one per cent increase in the rupee is affecting the industry’s profit margin by 40 to 50 points.

"We are being negatively impacted by the appreciation of the rupee. During the March quarter, the average rate for the rupee was 44, a two per cent appreciation compared to the average rate in the December quarter. Assuming that the average rate of the rupee for the June quarter is approximately 41, we will see a seven per cent rise in the average rate for the March-June quarter," said Mr Gordon Coburn, chief financial and operating officer, Cognizant Technology Solutions.

He conceded that every one per cent movement in the rupee results in a 20 basis point impact on Cognizant’s operating margins. "However, if the rupee hovers around 41, the impact for the June quarter would be an approximately 140 basis point reduction in our operating margin," he said.

Ms Subha Kumar, CFO, Congruent Solutions, says, "Since we have not passed on the benefit of the rupee going down against the dollar to the end clients during the last few years, there is no way we can expect the clients to pay higher dollars now." She pointed out that the ever escalating salary levels because of better profitability of the firms cannot be lowered suddenly.

"Just to put it in numbers, if a company was making net profit of 20 per cent of their dollar revenues six months ago, the profits will be shaved by half to just 10 per cent post the rupee getting stronger," she said.