IT cos hit by rupee surge

Everytime the rupee goes up - the fortune of IT companies goes down.

Wipro earns over two thirds of it's revenue from the US, so do Satyam , Infosys and TCS. That's why every time the rupee appreciates, the revenues of IT companies depreciate. The last 2 quarters have been particularly tough - the rupee has gone up by almost 5 %.

On April 4, the rupee touched an 8-year high. Analysts estimate IT companies' revenues for the january to march quarter will be lower by about 1.5%. The next quarter will be worse.

"I think on account of weakness of the dollar against the rupee, you will see Infosys be the first one to come out with a muted guidance," says Ashwin Mehta, Analyst, Ambit.

Analysts estimate that every 1% rise in the rupee reduces profits by 30-40 basis points. Most IT companies buy hedges to protect against currency fluctuation. But here's where the cookie crumbles.

Brokerage house CLSA says - Wipro will be the worst hit amongst IT companies. That's because last quarter, it reduced its hedge by 50%. Infosys did so by 4%. But on the other hand, Satyam increased its hedge by 60% and TCS by 14%.

So companies like TCS and Satyam lose less if the rupee rises and if it depreciates - they only forego a premium. So if the rupee continues to appreciate, IT stocks will fast lose currency in the markets.