Sectoral Report- Information Technology {IT}

A weak rupee is positive for companies which have a large chunk of their revenues from exports such as IT companies. But even such firms were adversely impacted as they had hedged their future revenue and cash flows at much higher rupee-dollar rates.

Infosys, the country’s second largest information technology firm, took a hit of Rs 283 crore during the September quarter. Some of the companies reduced the impact of currency fluctuation on the income statement by reporting the loss on the unsettled hedging contracts in their balance-sheet. For instance, TCS reported a forex loss of Rs 80 crore in its earnings statement. But it reported an accumulated loss of Rs 501 crore on cash-flow hedges in its balance-sheet.

Capitalization of forex losses may be only a temporary solution, it has to be released over the long haul and this could affect the bottom-line. Over the short term there is uncertainty which looms large over this sector, we re-iterate a cautious stance, over the short – medium term we could remain underweight on this sector.