Dollar rate up but IT cos' currency woes see no end

The Weekend Story

 The rupee depreciation may have brought some cheer to IT companies but their currency woes are far from over. The dollar has appreciated against other currencies, including the euro and the pound that account for more than 20% of revenues for top-tier IT exporters. This has stoked fears that dollar revenues may be lower than the guidance projected by IT bellweather Infosys Technologies, and other firms in the sector. 

Dealers said a note by brokerage CLSA warning that Infosys may not be able to meet its dollar guidance for the second quarter and the full fiscal, sparked the sell-off in IT stocks on Friday , sending the BSE IT index tumbling 5%. 

“Infosys is most likely to miss its US dollar revenue guidance for both the September quarter and the full year FY2009. About 28% of invoices are denominated in GBP (pound), euro and A$ (Australian dollar ). The adverse movement of these currencies against the US$ is creating a ‘cross-currency’ headwind,” the note by the brokerage said. The steep fall shaved Rs 15,000 crore off the constituents of the BSE IT index. 

“Prima facie that (what is mentioned in the note) appears to be the reason for the fall. It is frightening that one note can spark off such a collapse ,” said one Mumbai-based IT analyst . According to the note, Infosys will need to revise its FY09 revenue growth guidance from 19-21 % to 17-19 % because of this. 

The company had given a 6% sequential growth guidance for the September 2008 quarter and the CLSA note said Infosys was most likely to miss this as well. 

“There has been double-digit dollar appreciation against the pound and Euro. This will obviously lead to lower dollar realisation and the dollar guidance could be missed. In rupee terms, this will be offset because of the double digit rupee depreciaton,” said Harit Shah, analyst with Angel Broking, adding that this was a currency issue and not related to any further drop in demand for IT. 

“The street has been expecting that the rupee fall from Rs 42 to Rs 45 (against the dollar) will be very good for IT firms. But what the street has not seen is that rupee has appreciated against the euro and pound, and so has the dollar appreciated against these currencies,” said Gaurav Dua, head of research at ShareKhan.