Infosys, India's second biggest software services exporter has lost over 17 per cent of its value since March 1. Wipro, the country's third largest IT firm, has lost 10 per cent of its share price in the same period. Meanwhile shares in TCS, India's biggest IT firm, have virtually remained at March levels.
The rupee hit a new life-low Wednesday, breaching the 56 mark to the dollar in intraday trade. However, IT (0.16%) stocks managed to close with modest gains on rupee weakness. Wipro (0.92%) and Infosys (0.30%) ended higher.
Also see: 7 steps taken by RBI to support rupee
Here are five reasons why IT stocks are not reacting to the rupee fall.
1) Demand for IT services: Finance Minister Pranab Mukherjee on Tuesday ascribed the rupee's precipitous slide to the euro zone crisis and to the global slowdown, adding that the Indian stock markets as well as economic growth have been hit by the slowdown
Global weakness is equally bad for IT firms. The US and Europe contribute over 60 per cent to the top line of big IT firms.
"Further weakening of global economic environment will also have an impact on the demand for IT services. The financial services vertical, which is a big growth driver for IT industry, is having rough time in the US and there are indications of further weakening of profitability," Bhavin Shah, CEO of Equirus Securities told NDTV Profit today.
2) Margin upsides: Rupee depreciation historically leads into near-term margin upsides for IT vendors. Margins can increase by 100-150 basis points in the near term. However, many vendors are willing to lower pricing for clients given the weak demand for IT services.
"In a period of rising rupee and relatively healthy demand, Indian IT companies were able to negotiate higher prices because they had to be compensated for currency appreciation. So, a reverse is also possible," Shah said.
3) IT earnings have been a mixed bag: While TCS has surpassed Street expectations, Infosys and Wipro continue to suffer from the overhang of weak March quarter earnings.
4) Muted growth forecast continues to weigh on the share prices. Infosys has projected for an 8-10 per cent growth in US dollar revenues in FY13, while Wipro expects flat growth in the current quarter. TCS does not give a forecast, but the company expects to beat IT lobby Nasscom's projection of 11-14 per cent growth in FY13.
5) Brokerage firms continue to be cautious on the sector: Analysts say risks to revenue growth remain on the downside and market share gain is independent of currency moves.