Strong Rupee and its impact on IT companies

The Indian rupee has appreciated by nearly 10% since late 2006 the currency is now hovering just above the symbolic Rs 40:1 USD. It suggests that the country's attractiveness to foreign investors is increasing and signals optimism about the Indian economy more generally. However, the concerns of exporters, who are part of India's economic resurgence, are rising as their goods become more and more expensive for overseas buyers.

The main reason for the rupee's appreciation since late 2006 has been a flood of foreign-exchange inflows, especially US dollars. The surge of inflows into India has taken a variety of forms, foreign direct investment (FDI), investment and remittances sent home by Indian expatriates, External commercial borrowings (ECBs), foreign portfolio inflows (FIIs).

Buoyant export growth has also built up India's foreign-exchange holdings. IT and business-process outsourcing (BPO) exports have expanded at an especially robust pace. However, the rupee's appreciation is alarming exporters, as it makes their products more expensive in overseas markets and erodes their international competitiveness.

To protect their margins IT and ITeS companies are forced to think in different ways. Most of the companies are heavily depend on US market. They might look towards Europe, Fareast, SA and even domestic market. Majority of the Indian IT companies are now reducing no. of employees who are on bench to 20%. Some companies like Wipro and Infosys are even contemplating to introduce 6 day a week work regime at least in fixed price projects unofficially though and go slow or freeze on recruitments. Some of the MNC companies who don’t have ‘bench’ concept are contemplating the big question ‘retrenchment’. Though they might not take this decision as of now it is being discussed more frequently. However such steps would give out a wrong signal in the market which is facing a shortage of skilled man power in the middle and senior positions. Despite this some companies still recruit people to meet the requirements but the offers might not be meatier any more as they need to be prepared to wok long hours and even on Saturdays. If the appreciation of Rupee against the Dollar still continues one can expect small increments or ‘peanuts’ as increments as the famous advertisement of Naukri.com says.

Therefore it is now time to be cautious and focus on your work and performance and adopt a wait and watch policy.