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IT cos set to get a rupee depreciation boost in Q1

Ankita Somani of Angel Broking says every 1 percent change in Rupee will boost margins of software service exporters by 30-40 bps.

June 12, 2013 / 11:21 AM IST
 
 
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Moneycontrol Bureau


Even as the overall market remained weak, investors continued to buy IT stocks on Tuesday, amid hopes that the recent sharp depreciation in the Indian Rupee will boost margins of companies like Infosys, Tata Consultancy Services, HCL Tech, Wipro among others.


The Indian Rupee depreciated to a record low of Rs 58.98 on Tuesday, before recovering slightly to about 58.50 in afternoon trade.


Software service exporters earn most of their revenue in US Dollars and so expect margins will imporve in the April-June quarter.


"All the IT companies will get a margin boost due to the Rupee depreciation. Every one percent change in rupee boosts margins by 30-40 bps," Ankita Somani of Angel Broking told moneycontrol.com.


The rupee has depreciated near 8 percent since May.


The Angel Broking analyst feels brokerages could revise their earnings estimates on IT companies if the rupee continues to fall further.


Kotak Institutional Equities had last week raised its earnings per share estimates on tier-I IT companies by 3-5 percent for FY2014-15.


It increased  TCS' FY14 EPS forecast to Rs 82.9 from Rs 79.6, Wipro's EPS forecast has been upped to Rs 27.3 from Rs 26.2 and HCL Tech's forecast has been raised to Rs 57.8 from Rs 55.9.


However, Kotak analysts feel margins gains will be limited due to competitive pressures and clients increasingly pushing for lower pricing and more experienced resources on projects.

The CNX-IT index was trading marginally positive in afternoon trade on Tuesday, compared with the wider Nifty index, which was down more than 1 percent.

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