If
the rupee continues to strengthen, it will add a new dimension
to the threats faced by the Indian IT service providers. For
India's burgeoning IT industry, which once enjoyed growth
at break-neck pace, suddenly the future looks less-than-rosy.
Blame it on rupee. The domestic currency has been going from
strength to strength for about a year and is now hovering
at a new 9-1/2 year high of 39.49/50 versus the US dollar,
as foreign inflows from portfolio investors (FIIs) as well
as Private Equity (PE) players continue to surge.
The FIIs
alone have invested a record $12.2 bn in Indian equities so
far this year, as of September 30, 2007, according to the
latest data from Sebi. PE investment too, at the same time,
has seen an uptrend. According to Evalueserve, a research
firm, PE struck close to 173 deals worth $5.4 bn in the first
half of 2007, and it expects the figure to grow to touch $8.02
bn in the second half of the current calendar year in Indian
companies across sectors such as technology, manufacturing,
financial services, healthcare, real estate and construction.
Evalueserve estimates that the PE investment could go up to
as much as $20 bn by 2010, a far cry from $20 mn investment
in private equity deals in 1996. While a strong surge in foreign
inflow is bound to add further muscle to rupee, which already
has gained 12% against the dollar this year (as against 1.74%
in 2006), it threatens to act as a major dampener for the
software exporters along with BPOs and other IT-Enabled Services
providers that earn a significant chunk of their revenues
in dollars; every single percent rise in rupee not only shaves
off some bps from the margins of Indian exporters (every 1%
rise in the value of the rupee against the dollar results
in an erosion of 30-50 bps in the operating profit margins
of IT exporter), it also makes Indian exports more expensive
and less competitive in global markets. |
