Record Weakness in Rupee not translating to higher Corporate Profits

The rupee’s slide to a record low may fail to lift profit margins for India’s biggest software exporters as Infosys Ltd. (INFO) and Tata Consultancy Services Ltd. (TCS) pass on the currency benefit to clients in a race for orders.

India’s rupee has slumped 5.7 this quarter, making it the worst performer in Asia, and touched an all-time low of 58.985 a dollar on June 11. A weaker currency makes exports cheaper for overseas buyers, boosting demand. Still, Infosys shares fell 2.1 percent last week and Tata Consultancy tumbled 4.5 percent, the biggest declines since the five-day period ended April 26.

Profit margin at Tata Consultancy, the nation’s No. 1 software maker, has shrunk in six of the past nine quarters, while the gauge for Infosys has narrowed in the last two amid spending cuts by customers in North America and Europe. Sales recovery at Infosys may be painful and may take at least 36 months, Chairman N.R. Narayana Murthy said on June 15. While a weaker rupee may help increase revenue from existing contracts, prospective customers may negotiate cheaper rates, countering any gains, said Hitesh Shah, an analyst at IDFC Securities Ltd.

“This is what we saw the last time too, when the rupee plunged,” Mumbai-based Shah said in a telephone interview. “Neither Infosys nor TCS could improve their margins despite the rupee depreciation. To win deals, they will explore all possible ways.”

Bloomberg

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