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Indian IT exporters coin windfall profits as rupee plunges

Now's the time to renegotiate outsourcing and offshoring deals

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Good timing for struggling outsourcers

Gartner principal analyst Arup Roy agreed that for an export-heavy industry like Indian IT services and BPO sector the low rupee is helping the country’s big players expand their margins.

In fact, the mini-currency slump seems to have come at a good time all round.

The sub-continents’ IT giants have found the cost advantage of India as an offshoring destination decreasing every year, thanks in part to rising wages and GDP, and have also had to battle increased competition from locations in Asia, Latin America and elsewhere, as well as trying to adapt their business model to make it more cloud-centric, Roy told El Reg.

The boost to margins could also come in handy given the spike in costs which could arise if a proposed new immigration bill is passed in the US, he added.

The bill, which Nasscom has labelled “discriminatory”, could force India firms to hire more US employees, pay their US-based staff more and fork out more for visas.

In this context, a weak rupee will be most welcome in the boardrooms of Infosys, Unisys, Wipro et al.

Infosys, for example, confirmed to The Register that the rupee’s rapid fall will help pay for an eight per cent pay rise it gave staff in July. It also verified comments made by CEO SD Shibulal at a conference last week that even a one per cent slump in the value of rupee will add 0.25 per cent to the firm’s operating margin.

However, Gartner’s Roy warned that while the weakened rupee would help increase profitability in the short term, it would do little to help underlying revenue growth for such firms.

The financial benefits have also been undermined to a certain extent by the fact that most of the big services players have a currency hedging policy to counter any volatility in the exchange rates, although the rupee’s slide this time has been so large as to still have some impact, he explained.

As for their customers, Roy cautioned firms to wait and see if the rupee stabilises before making any major changes.

“We’re already getting enquiries about whether they should start renegotiating,” he said.

“If this continues for a longer period, for another quarter, then it makes sense for clients to start renegotiating. For now there should be a watch and wait policy.” ®

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