Monday, July 24, 2006

Mumbai news reports: Weaker rupee benefits IT firms

Clearly the weakening value of the Rupee is benefiting companies in India while harming American technology workers and domestic businesses. The following article from an Indian news outlet, rediff.com, details the windfall for Indian companies.

What response should the United States have to this problem?


Weaker rupee benefits (Indian) IT firms

Infotech companies are making the most of a depreciating rupee and have systems in place to hedge the risk inherent in forex earnings.

With over 90 per cent of the revenues of Indian IT companies coming from clients abroad, the rupee's downward trend over the past few quarters is boosting the power-packed results of the sector.

Since IT companies derive a bulk of their revenues in dollars, rupee depreciation adds to their bottom line.

Taking into account the expenses incurred in dollars owing to on-site operations, a one per cent fall in the rupee usually results in a 0.3-0.4 per cent gain in the operating margins of most IT companies, and vice-versa.

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