Indian IT Firms Poised To Benefit From Rupee Slide, Say Analysts

Indian information technology firms stand to benefit from favourable currency exchange as the rupee weakens against the US dollar amid broader economic uncertainty.

The IT companies are likely to see a positive impact on their revenue and profit due to the slide in rupee, while the currency benefit will also help offset furlough impact in the third quarter, according to analysts. 

The rupee fell 6 paise from its previous level of 85.20 to settle at a record low of 85.26 versus the greenback on Thursday. The domestic currency reached a record intraday low of 85.29 throughout the session, indicating ongoing negative pressure in the face of global headwinds. 

Typically IT companies bill the majority of their clients in dollars. With the US market being the major contributor of revenues, the weakening of the rupee gives firms favorable foreign exchange benefits.  

“Around 50 to 60% of the revenue for Indian IT companies come from US markets, so the rupee weakening is a big deal for the sector. For every one rupee depreciation may boost revenue by around 0.4 or 0.5%, and the impact on the profitability will definitely be higher, said Sumit Pokharna, vice president at Kotak Securities Ltd.

Along with dollar, companies also get revenue from other currencies, hence the complete cross currency effect will only be known by the end of the year. The benefit from rupee depreciation will also help the companies offset the impact of furloughs, which generally affects companies in the weak third quarter, he added.

Further, the weakening of the rupee will give IT companies leeway to be more aggressive with their pricing strategy. This will be helpful as the companies are struggling with pricing especially in cost-takeout deals, said Pareekh Jain, chief executive officer of Pareekh Consulting. 

“The effect on deals may be felt gradually, especially with new orders, where prices could be adjusted by 1-2% downward compared to previous pricing. However, the overall impact on pricing is expected to be minimal in the short term. Furthermore, with this favourable outcome, companies would also look at making more investments in AI,” Jain added. He expects 0.5% revenue growth and 1.5% profitability growth for every 1% depreciation in the rupee.

The Indian currency is expected to face continued volatility in 2025, with uncertainty heightened by US President-elect Donald Trump's potential tariff policies and inflationary measures.

IT analysts expect the continued decline of the rupee to benefit companies in the third and fourth quarters. Those with a revenue mix heavily skewed towards the US market are likely to see higher benefits. 

However, the sector is still not out of the woods completely. Pokharna said. “The rupee depreciation has a positive impact but stock prices have already increased due to this factor. The key concern now is that the market had anticipated more frequent interest rate cuts by the Fed, which would have benefited the sector by boosting demand. However the expectation of fewer rate cuts could negatively affect IT companies.”