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.