Falling rupee to help IT companies’ earnings: Report

Bengaluru: India-based IT services companies are likely to benefit from the rupee's’ 1-3 per cent depreciation against several other currencies,  global brokerage firm Jefferies said in a report. Wipro, Sagility, LTI Mindtree (LTIM) and Coforge are best placed on the back of higher revenue exposure to the US Dollar, Euro (EUR) and British Pound Sterling (GBP) and a higher offshore employee mix, it said

The brokerage has maintained a constructive stance on Infosys, LTIM and TCS among large caps and Coforge, Sagility and Mphasis among mid-caps. “We raise our estimates by 2-5 per cent to factor in recent foreign exchange moves, but lower our target price to earnings (PE) by up to 15 per cent,” the report added.

Donald Trump’s stance in the US has uplifted prospects of stronger economic growth, along with a recent rate cut in India, which has driven a sharp 1.4 per cent depreciation between rupee and dollar since December 2024. The Indian rupee has been continuously depreciating over the past few months, touching several all-time lows, with the latest low being Rs 87.44 against the greenback.

“Higher rupee depreciation usually leads to higher margins, which can also be passed onto clients to support wallet share gains,” highlighted the report. Wallet share gains is a situation where an IT company increases the percentage of a customer's total spending on technology services that they capture. 

Indian IT firms have 75-90 per cent of their revenues denominated in the foreign markets they cater to, dominated by North America and Europe. The net impact of currency moves depends primarily on currency mix of revenues. 

While the report upgraded the earnings per share (EPS) estimates to 2-5 per cent, it cut the price earnings (a metric that compares a company's stock price to its earnings per share) target multiples by as much as 10 per cent for large IT firms and by as much as 15 per cent for mid-sized IT firms.

Since 2011, IT stocks have outperformed Nifty on occasions when the rupee has depreciated sharply against $/EUR/GBP. If the recent foreign exchange trends continue, 2025 could see IT stocks outperforming Nifty yet again. 

Finance Minister Nirmala Sitharaman recently rejected criticism over the falling rupee, stating that it has depreciated only against a strengthening US dollar but remained stable against all other currencies because of the strong macroeconomic fundamentals.