Rupee Appreciation in IT Industry
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Transcript of Rupee Appreciation in IT Industry
Rupee appreciationIn
IT INDUSTRYSubmitted By:
Kanika Anand
Lipi Agarwal
Priyanjana Ghatak
Swati Singh
Varun Sharma
Vikas Sharma
Vipin Khandelwal
Research Details
Research Objectives:
Finding out the Reasons & Impact of Rupee appreciation/Depreciation on IT
Industry, to discuss what all positive traits as well as negative traits did Rupee
Appreciation/Depreciation had on IT Industry, steps taken by IT Industry against
Rupee Appreciation/Depreciation.
Data Collection Method: Secondary Data
Methodology: We have compared the revenue generated by IT Industry in
various years so as to do the comparisons. This actually helped us to understand
that how much IT Industry has lost after Rupee Appreciation.
Overview of Indian IT Industry The IT Industry has grown from a mere US $ 150 million in 1991-92 to a
staggering US $ 5.7 billion 1999-2000.
India’s software exports would be around $ 6.3 billion, in addition to $ 2.5
billion in domestic sale.
According to a NASSCOM-McKinsey report, annual revenue projections for
India’s IT industry in 2008 are US $ 87 billion and market openings are
emerging across four broad sectors, IT services, software products, IT enabled
services, and e-businesses thus creating a number of opportunities for Indian
companies.
1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01*
Domestic software Market 490 670 920 1250 1700 2450
Software Exports 734 1085 1750 2650 4000 6300
Indian Software Industry 1224 1755 2670 3900 5700 8750
Indian Software Industry 1995-2000 (US $ million)
India Based
India CentricSubtotal(International)
Domestic Total 1998
IT Services 23 7* 30 8.5 38.5 2.1
Software Products
8 2 10 9.5** 19.5 0.6
IT-enabledService
15 2 17 2 19 0.4
E-business 4 1 5 5 10 0.2
Total 50 12 62 25 87 3.3
Projected Revenues - 2008($ US billion)
Exports of $50 billion in 2008
Currency Appreciation
Appreciation is a rise of a currency in a floating
exchange rate.
Currency Appreciation means that the given
currency has become more valuable with respect to
another currency.
For example if the rupee appreciates it means that
rupee has become more valuable in relation to dollar.
Why the Indian rupee appreciated
Foreign Direct Investment (FDI)
India's outstanding economic growth has created a large domestic market that
offers promising opportunities for foreign companies. Moreover, the country's
rising competitiveness in many sectors has made it an attractive export base.
These factors have boosted FDI inflows into the country. For example, in
2006-07, FDI amounted to around US $16bn, almost three times the previous
year's figure. More than half of these inflows arrived in the final four months
of the fiscal year (December 2006-March 2007).
External Commercial Borrowings (ECBs)
Indian companies have borrowed enormous amounts of money overseas to
finance investments and acquisitions at home and abroad. India's balance-
of-payments (BoP) data reveal that inflows through ECBs amounted to an
enormous US $12.1bn during April-December 2006, a year-on-year jump
of 33%. The flood of borrowed money is likely to grow in 2007. In the first
three months of the year, Indian companies have notified the RBI of their
plans to raise nearly US $10bn in overseas debt markets.
Foreign portfolio inflows
India's booming stock market embodies the confidence of investors in the
country's corporate sector. Foreign portfolio inflows have played a key role in
fuelling this boom. Between 2003-04 and 2006-07, the net annual inflow of
funds by Foreign Institutional Investors (FIIs) averaged US $8.1bn. Trends
during the first five months of 2007 indicate that this flood is continuing, with
net FII inflows amounting to US $4.6 billion. Another major source of portfolio
capital inflows has been overseas equity issues of Indian companies via Global
Depositary Receipts (GDRs) and American Depositary Receipts (ADRs).
Inflows from GDRs and ADRs amounted to US $3.8bn in 2006-07, a year-on-
year increase of 48%.
Investments and remittances
Indians settled in other countries have also been a major source of capital
inflows, with many non-resident Indians (NRIs) investing large amounts in
special bank accounts. While NRIs' emotional connection to their country of
origin is part of the explanation for this, the attractive interest rates offered on
such deposits has also provided a powerful incentive. In 2006-07, NRI deposits
amounted to US $3.8bn, a 35% increase over the previous year; the outstanding
value of NRI deposits as of end-March 2007 was US $39.5bn. Another large
source of foreign-exchange inflows has been remittances from the huge number
of Indians working overseas temporarily. Such remittances amounted to a
colossal US $19.6bn in April-December 2006, a 15% year-on-year increase.
Data analysis
The Indian IT sector, credited with India Inc's strong image globally,
had to sail through rough waters last year as incremental rise in the
value of rupee created turbulence in an otherwise sunshine sector.
The rupee, which rose by over 12 per cent against the dollar this year,
has severely affected the IT companies.
Share of the Top 20 Exporters Dropped, reversing a Trend of many Years
Comparative analysis
• Infosys managed to maintain the operating margin by increasing its per employee
revenue by close to 5%.
• It managed to increase rates, both from existing clients and new clients.
• It changed its services mix with systems integration/consulting now contributing
a higher percentage to its revenue increased the offshore component in the services
segment, and finally even reduced overheads through scale benefits.
• Most large companies have delivered on the operating margins, and absolute net
margin growths, which often move stock prices in India.
• FY08 has been a year in which resilience of this industry was tested. On many
increases, they have actually delivered better than the previous year.
By Numbers
The IT services exports from India grew 25.7% in FY08 to reach
Rs.105684 crore in dollar terms, its size stood at $32.9bn, up 39.9%
from FY07’s export of $23.5bn. This does not include BPO revenue
but includes all other areas: products, outsourced product
development, engineering services, and consulting.
The top 20 exporters too grew at the same rate, 25.8% and clocking a
combined revenue of Rs. 101218 crore ($25bn) or 76% of total IT
export revenue from India.
Business by Top IT Players
The Top 20 Exporters
Rank
Company
Exports (in Rs crore) Growth
FY 08 FY 07 FY 08 FY 07 (%)
1 1 TCS 20,261 15,880 27.6
2 2 Infosys 15,531 13,025 19.2
3 3 Wipro 12,783 10,119 26.3
4 4 Satyam 7646 5,843 30.9
5 7 Cognizant 6310 4,584 37.7
6 5 IBM 5890 4,880 20.7
7 6 HCL Technologies 5800 4,598 26.1
8 9 Tech Mahindra 3571 2,875 24.2
9 10 Accenture 3550 2,700 31.5
10 11 HP 2782 2,254 23.4
Top 20 IT Companies and there Comparative Revenue Analysis
11 10 Patni 2,556 2,638 -3.1
12 12 I-flex 2384 1,976 20.6
13 8 Oracle India (excluding I-flex) 1920 1,731 10.9
14 19 MphasiS 1881 1,299 44.8
15 12 L&T Infotech 1,627 1,244 30.8
16 13 Capgemini 1572 1,207 30.2
17 22 CSC India 1571 808 94.4
18 15 Perot Systems 1301 975 33.4
19 14 Aricent 1194 1,041 14.7
20 21 Prithvi Information Solutions 1088 768 41.7
TOTAL 101,218 80,445 25.8
Contd.
Effects of Rupee Appreciation
on IT Industry
Loss of status as an attractive outsourcing destination.
Laying off employees which led to high attrition rate.
Recruitment from countries other than India.
The employees had started feeling the pinch in the form of lesser salaries and lesser recruitment.
Pressure on profit margins.
Certain companies were unaffected such as Rolta India and 3iInfotech.
Great volatility in the stock price of IT companies.
Steps to be taken by IT industry
Adapt to changing market scenarios quickly.
Diversify globally especially european markets.
Address skills shortage.
Innovate: do things differently and not necessarily different things.
Tighten recruitment process.
Enter into local markets as the opportunity is not worth ignoring.
A COIN HAS TWO FACES.
Here’s the other one…
• Helped gain confidence of foreign investors.
• Companies like Infosys and L&T generated foreign exchange gains
due to reduced interest payouts.
• Major stock indices scaled new peaks due to a high correlation
between sensex and INR.
• It helped control inflation.
• The IT hardware players saw the positive side of rupee appreciation.
Companies such as HCL, IBM India import hardware and software
and thus when rupee appreciates they can buy more goods per
dollar.
CONCLUSION
• It can be inferred that the issue of INR appreciation will play a
major role if India has to become a superpower nation by
2020.
• This is indeed a bit tricky for the Indian IT industry, but
there’s no real reason to panic.
• With a slight course correction and an unswerving view on the
long-term, the Indian IT industry can emerge stronger and
bigger.
QUERRIES
Thank You