IT companies to gain from rupee depreciation, but West Asia conflict to trigger business uncertainties

Middle East and Africa (MENA) has been a significantly growing market for IT services companies, as core geographies like North America have been slowing down in growth in recent years.

IT majors, including Tata Consultancy Services (TCS), Accenture, Cognizant, Wipro, Infosys, HCLTech, and others have been doubling down their focus on the region as the geography is seeing double-digit growth, contributing nearly 10-25 percent of the revenues for these companies at present, Moneycontrol had earlier reported.

Namratha Dharshan, Chief Business Leader - India Research at technology research and advisory firm, ISG said, “The rupee depreciating can be a tailwind to Indian IT exporters. However, it can only provide short-term advantages to companies. We don’t see more than 2-4 percent impact, but short-term.

“Rupee depreciation can provide short-term advantages, but the long-term growth is dependent on new deals, improvement in discretionary, etc.,” she added.

Pareekh Jain, Founder and CEO, EIIRTrends, said, “Cost of operations and travel costs are increasing for everyone, while the industry is not growing as much. All the IT companies are facing margin pressure, so rupee depreciation will surely help.”

He added, “However, the immediate impact would be very little, as IT companies tend to hedge against currency volatility for at least two quarters.”

Jain explained that even as rupee depreciates in this particular situation, there will also be second order impact. This won’t be an isolated event.

“The war and uncertainties will lead to customers cutting down discretionary spends in the region. Middle East, especially Saudi Arabia, is becoming a growing market for IT firms. Companies like Wipro and Tech Mahindra have moved their Middle East offices to Saudi Arabia,” he said.

Iran’s blocking of the Strait of Hormuz will further impact trade routes and economies as oil prices will also be impacted. Globally, 20 percent of the world’s oil flows through the Hormuz corridor, and even 40 percent of India’s oil imports pass through this corridor.

According to research firm ICRA, the average crude oil price could rise to $80-90/bbl in FY2026. This would also exert pressure on the USD/INR pair during the fiscal year.

Significance of the Middle East market For IT services companies, the Middle East, while previously an afterthought in terms of target markets is showing great promise as an engine of growth cutting across industries beyond oil and gas with massive infrastructure projects like The Line in Saudi Arabia, the football World Cup linked public investments, and the AI-related digital services boost in the UAE for a wide range of public sector services.

“Vendors like LTIMindtree, TCS, and Wipro are already strengthening their existing presence and leveraging long standing relationships of their sister companies in construction like L&T backed by digital sovereign funds and investment bodies,” according to Gaurav Parab, a principal research analyst at consulting firm NelsonHall.

The region in the next five years will contribute between 5 to 10 percent to revenues much like Australia does today, slightly offsetting the uncertainty coming in from the US and Europe, Parab added.