The rupee has been depreciating. It touched Rs 42 per dollar in intra-day trades yesterday. So, what are the hedging strategies of top IT companies, given that at the start of the year we were seeing an appreciation in the local currency?

The whole IT pack has been excited because of the depreciation that we have seen. It will boost margins both on the topline and bottomline. Analysts are looking at how the forex losses are likely to pan out this time because in FY08 we had seen significant forex gains coming from hedge positions of IT companies.

Three IT companies - Wipro, HCL and TCS follow a cash flow hedging strategy while two, i.e Infosys and Satyam, follow mark-to-market

A cash flow is when they recognise only the hedges that they have taken for the quarter, accounted for in their PL account. The remaining losses or profit are kept in the balance sheet and they are recognised only as and when those transactions come into play.

So if one were to look at who is sitting on the highest quantum of forex hedges right now that would be Wipro with close to USD 3.5 billion of hedges, followed by TCS  with USD 2.9 billion, the third is HCL with USD 2.7 billion. Infosys comes in last as it has significantly cut down its hedge position over the past few quarters.

But one thing which stands out is where each of them has hedged the rupee position which is close to 40-41 against the dollar, the lowest is Satyam at around the Rs 40/dollar. So it’s significantly already Rs 2 off depreciation which could translate into losses.

We are watching out for HCL the most because of the volatility of losses that they have shown in the past few quarters. Wipro is very different and they have hedged for anywhere between Rs 39.50-43 and the nature of the hedges ranges from one year to five years. So since they have not given how much of these hedges pertain to it, one need to watch out volatility from Wipro.

Next is TCS because they already have close to USD 100 million of losses sitting in their balance sheet. So these are the three companies that one needs to watch out for.