European crisis may chip 2.4% off IT growth

European crisis may chip 2.4% off IT growth
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First Published: Mon, May 17 2010. 11 44 PM IST
Updated: Mon, May 17 2010. 11 44 PM IST
Mumbai: Investment advisers in India said the weakening of the euro and the pound against the dollar as well as the strengthening of the rupee against the US currency could shave off up to 2.4% from the growth of Indian information technology (IT) exporters in the near term.
“Tier-1 IT service providers with an exposure of 15-27% to Europe (invoicing-wise revenue) would be impacted by 1.3-2.4% q-o-q (quarter-on-quarter) on the USD revenue front,” IT analyst Subhashini Gurumurthy of Ambit Capital Pvt. Ltd said in a 17 May update on the sector.
The euro weakened on Monday amid worries that the $1 trillion Greek bailout and austerity measures might further slow European economies.
If the current pattern of cross-currency movement persists, it could have a long-term adverse impact on the growth of India’s IT sector, which is just recovering from the global economic slowdown triggered by the collapse of Lehman Brothers in September 2008.
India’s largest IT services exporter Tata Consultancy Services Ltd (TCS) declined to comment on “currency fluctuations”. The country’s third largest IT exporter Wipro Ltd had previously told Mint that it was too early to comment, but added that if the euro and the pound continued to fall, it will likely have an impact on growth.
Analysts with BNP Paribas warned that the euro and the pound could continue to fall even in the longer term.
“Our FX (foreign exchange) team expects the EUR/USD to weaken 20% and the GBP/USD 12% from current levels by March 2011, but the USD/INR to strengthen 9% as Asia seems ‘safer than ever’,” BNP Paribas analysts Abhiram Eleswarapu and Avinash Singh said in a 17 May note.
“We calculate that if these predictions come true, our FY11-12 USD revenue estimates would be hit 4-14% and INR earning per share 5-18% across our coverage. Our TPs (target prices) could see a 23-46% cut, and stocks could head 10-25% lower from here,” BNP analysts said.
IT stocks continued to fall on the Bombay Stock Exchange (BSE) on Monday. TCS fell 2.47%, while Infosys Technologies Ltd fell 1.55% and Wipro slipped 3.30%.
On a day when the Sensex fell 0.94%, the sectoral index for IT stocks, BSE-IT, fell 1.80%. Since 16 April, BSE-IT has fallen 6.33%.
lison.j@livemint.com
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First Published: Mon, May 17 2010. 11 44 PM IST