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IT Firms Set to Report Slowest Growth in 5 Years on Dollar Strength

IT Firms Set to Report Slowest Growth in 5 Years on Dollar Strength

The dollar's biggest quarterly rise against other major currencies since 2008 has undermined sales of India's IT services firms in non-U.S. markets, including Europe, in what was already a seasonally slow period.

The greenback rose 9 per cent against currencies including the euro in January-to-March from a quarter earlier, driven by the diverging outlook for U.S. monetary policy and economies such as Europe - the second-biggest market of Indian IT services exporters.

The euro's decline coincided with the rupee's strength - bad news for Indian exporters to the euro zone. The euro fell 12.4 per cent against the rupee in its biggest quarterly drop ever.

The rupee found support in a market view that the U.S. will tighten monetary policy at a slower pace than thought, lowering the chances of capital outflows from emerging markets including India. The resulting cross-currency headwinds crimped quarter-on-quarter revenue growth of India's $146 billion IT industry by 2.25 to 3.00 percentage points in the final three months of the fiscal year ended on March 31, according to a report by brokerage and investment group CLSA this week.

Tata Consultancy Services said last month that currency fluctuations would reduce its margins by 40 basis points quarter-on-quarter.

The non-U.S. businesses of Indian IT companies have grown significantly in recent years as they sought to diversify their revenue streams after the 2008 crisis saw a plunge in U.S. business. The firms have enlarged their footprint in Europe through acquisitions and local offices. Revenues from Europe have nearly doubled in the last five years for India's top six IT companies by market value, including Infosys, Wipro and HCL Technologies, outpacing revenue growth from the United States in that period.

The six companies may report revenue growth of 13.2 per cent in the fiscal year ended on March 31, according to estimates compiled by Thomson Reuters, the slowest in five years.

"In the March quarter, revenue growth will be down by 2 to 2.5 per cent quarter-on-quarter, but the currency impact should be less in the coming quarters due to reduced volatilities in the cross currencies," said Sarabjit Kour Nangra, vice president of research at Mumbai-based Angel Broking.

© Thomson Reuters 2015