BUSINESS OPPORTUNITIES FOR THE IT INDUSTRY IN INDIA WITH A STRONG RUPEE

PRESENTATION FOR THE COURSE: TALENT ACQUISITION

COURSE INSTRUCTOR: PROF. HARSHALI

GROUP MEMBERS: NIRAV DESAI, SHWETHA BHATT, SUDHA EDUPUGANTI, KRITIKA BANSAL

MBA-IT 2014-16

SICSR

Opportunities pre appreciation

Indian software companies such as Infosys, Tata Consultancy Services (TCS) and Wipro get most of their business from the developed economies.

Since IT companies earn most of their revenues in dollars , given that their big market is the US, and since their expenditures are mostly in rupees, given that they do their delivery mostly out of India, profit margins will widen in line with the rupee depreciation. 

Different companies had different margin sensitivity. For Infosys, every 1% change in rupee value leads to an increase or decrease in EBIT margins by 50 basis points. For TCS, it is 30 bps.

Opportunities pre appreciation

IT companies are in the practice of hedging their currency risks. As a result, the forex loss on account of hedging would be taking some of sheen out of the reported results  

Analysts were of the opinion that companies like HCL Technologies and Infosys that hedge for a shorter duration and also have lesser hedged amount will see substantial gains.

A falling rupee increases the margins of export-oriented sectors such as ours, and thus contributes favorably to the business.

References

http://timesofindia.indiatimes.com/tech/tech-news/How-falling-rupee-will-help-Indian-IT-companies-TCS-Infosys-and-Wipro/articleshow/20491120.cms

http://www.business-standard.com/article/technology/rupee-depreciation-positive-for-it-sector-111092300070_1.html

http://www.informationweek.in/informationweek/news-analysis/271797/impact-rupee-depreciation-enterprise-vendors

Exchange Rate vs Price of Imported Oil:Direct Correlation here

USD-INR Exchange Rate

Statistical Analysis: Exchange Rate vs Inflation

USD-INR Exchange Rate

Statistical Analysis: Inflation vs IIP and GDPReference: Accenture india 2014: annual review of key economic trends

India GDP Annual Growth RatePercent change to Gross Domestic Product

Information from: Fossil Fuel Subsidies in India: The Case for Rationalizing Petroleum Prices by

Anmol Soni (TERI)

USD-INR Exchange Rate

Information from: Fossil Fuel Subsidies in India: The Case for Rationalizing Petroleum Prices by

Anmol Soni (TERI)

USD-INR Exchange Rate

Information from: Fossil Fuel Subsidies in India: The Case for Rationalizing Petroleum Prices by

Anmol Soni (TERI)

Summary of the Analysis:

Stronger Rupee would mean lower cost of imported oil, gas and coal.

Lower cost of imported coal would imply cheaper electricity.

No direct benefit since State Electricity Boards are subsidized by the Government.

Lower cost of oil would mean less money spent by government on oil subsidies.

Freed up cash could be used for other projects by the government.

Government could also lower the taxes if spending on subsidies is less.

After Appreciation…

Government can drop taxes on import taxes,vat taxes etc.

Government will reduce subsidies on crude oil which takes 35% of the budget.

Now, government can finance in other sectors.

It is more likely that government will invest in IT sector for enhancement of economy.

Government frees up cash…

Projects which can be introduced are:-

smart grid, biometrics based database of citizensfor identifying criminals, etc. and also charge lower taxes.

Domestic market will increase. More investment for innovation in

Research and Development. More job opportunities.

Entering New Markets

As current scenario states domestic producers focussing on domestic markets who see lower costs and more disposable incomes of the prospective market

Here are some new entries

Telecom and Communication

Education

Healthcare

Agriculture

Manufacturing

Public Security

Telecom and Communication

Telecom and 3G: The roll out of 3G of mobile phones in India should be seen as a positive development for the IT companies. In the long run it is going to provide basic communication facilities in the rural areas of the country. In India it is going to provide basic communication and broadband access to the rural youth. Moreover Growth in Telecom industry also demands greater IT application in terms of VAS (Value Added Services), Telecom Billing Solutions, IVRS etc.

Telecom and Communication(2)

 IT companies should also focus more on the domestic markets with major projects lining up inside the country as well for instance the Railways ERP project, the BSNL systems integration, networking projects, IT work from ministry of finance and private telecom companies, banks and others.

CONCLUSION

Thus we observe that the Indian IT industry has been facing some challenges but if effective steps are taken then it will surely help it to remain competitive in the future as well.