A Study on the Impact of Currency Fluctuation on the Indian IT Sector

Abstract

The last twelve months have seen the Indian Rupee (INR) soaring to new highs against the Dollar (USD), and subsequently falling to new lows. This has been a key concern, with the INR rising notably from around INR 47/$ level in July 2007 to its level around INR 38/$ in September 2007, and back to around INR 43/$ currently. This is expected to have had an impact on the Information Technology (IT) sector, which mainly depends on the earnings from exports of software and hardware products, and also from the services of the Indian IT workforce in the US. The present study analyses the impact of this INR/USD exchange rate fluctuation on the Indian IT sector as a whole, and surveys the different types of measures/strategies adopted by IT companies to mitigate this impact. The analysis is performed on a random sample of fifty major IT companies, and uses the concept of foreign exchange exposure to assess the same. The results of the study showed that FOREX exposure was especially alarming for a small fraction of small-cap IT companies. The mid-cap and large-cap IT companies had relatively low/moderate exposure levels. The majority of large-cap companies had already hedged their FOREX risk, and were not significantly affected by their respective FOREX exposures.