The Reserve Bank of India (RBI)’s directive stating exporters would have to convert 50 per cent of their foreign exchange holding into rupees, would not have any significant impact on the export-driven Indian information technology (IT) services sector.
Industry players and analyst said though the industry earned in foreign currency, the majority of its expenses were in rupees and hence, holding on to currency was not sensible. However, many felt companies would have to get into dynamic management of forward covers.
“The RBI announcement will not impact us much. An overwhelming part of our expenses are in rupees, and our revenue comes in different currencies. So, holding on to dollars or any other currency for a longer time does not suit us. We do need to keep funds in exchange earner’s foreign currency (EEFC) accounts to meet local monthly expenses, but the amount required for this is low. Moreover, it makes sense to bring money to India, as you get better returns compared to foreign countries. If the rupee shows a continuous tendency to depreciate, one might feel the strategy of keeping funds abroad is better. However, we hedge our foreign receivables and, therefore, we derive no advantage by taking a call on rupee rates,” said S Mahalingam, chief financial officer (CFO) and member of the board of Tata Consultancy Services.
Analysts say at any given time, IT firms may keep 10-15 per cent of their cash in EEFC accounts. But even if they have to convert 50 per cent of this into rupees, it would not have a big impact, as they would generate equal amounts of cash almost every month or two. “Besides, keeping money in India is logical, as they get yields in the range of 9.5 to 10 per cent, much higher than keeping money in EEFC accounts,” said an analyst tracking the sector.
“The RBI directive would have an impact, from a near- to short-term perspective, of meeting the demand-supply gap for dollars. For Mastek, we keep a very small float in EEFCs. This, too, is kept for a short time, as we remit it to subsidiaries for meeting local expenses,” said Farid Kazani, CFO, Mastek.
However, the directive would impact the IT industry’s forward cover management. “Companies would have to closely monitor EEFC accounts and the inflow of money into these,” said Kazani.
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Venkatraman, CFO of mid-cap IT services and product firm Sonata, agrees. “Companies would have taken forward contracts, and these would be timing their flows to ensure the forward contracts are honoured through EEFC balances. Most of these take forward contracts to the extent of 90 per cent to ensure volatility is evened out. If RBI says something, we need to follow it and its guidelines. There are multiple factors which affect foreign currency,” he said.
Ganesh Natarajan, chief executive, Zensar Technologies, said, “It is not going to have a negative impact on the Indian IT export industry. Most IT firms are long-term investors, they operate abroad through subsidiaries. We do not follow the EEFC route. I tend to agree with what RBI is doing for supporting the rupee. If the rupee-dollar rate stabilises, it would help the industry.”