Rupee depreciation a mixed bag for industry, software companies expected to gain

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The decline in the value of the rupee against the US dollar is proving to be a mixed bag for the industry, with some sectors bearing the brunt of it while others, especially software exporters, are hoping for continued gains.

The rupiah, which has depreciated against the greenback, is near the psychological barrier of 80 to the dollar and is expected to remain subdued as the Federal Reserve works overtime to contain inflation, which is at an all-time high, in the USA.

The biggest impact of rupee depreciation will be on imported goods or goods using imported components, and the most sought-after item in this category is a mobile phone.

“Each percentage drop in the value of the rupee has an impact of 0.6% on the mobile phone supply chain due to imports of components. The 5% drop (in the value of the rupee) has a 3% impact on overall profitability, therefore prices need to come down,” said ICEA President Pankaj Mohindroo.

On the other hand, he added, “India’s export ecosystem is benefiting.”

“Imports would have become expensive to that extent, but luckily commodity prices have started to come down,” Mohindroo said.

Regarding the impact of Rupee depreciation on the software sector, Deepak Jotwani, Assistant Vice President and Sector Head – Corporate Ratings,

said, “As a significant portion of industry revenue is denominated in USD, the depreciation of the INR against the USD has supported industry revenue growth and margins to some extent. measure historically.”

If the recent weakness seen for the INR continues over the next few quarters, he said, “the depreciation of the INR should boost industry profits in fiscal year 2023.”

Sumit Pokharna, VP – Fundamental Research, Kotak Securities, said Indian IT companies are facing cross-currency headwinds emanating from 5%, 6.6% and 1.7% appreciation in the USD against the EUR, GBP and AUD, respectively, in Q1FY23.

“Optically, the depreciation of the rupiah may appear as a headwind, however, cross-currency headwinds provided only marginal tailwinds for the quarter,” Pokharna added.

Regarding the impact on the steel sector, Alok Sahay, Secretary General of the Indian Steel Association (ISA), said that although the depreciation of the rupee against the US dollar would have an impact on the domestic steel industry input costs, “there may not be an immediate impact on the cost of domestic steel production as the impact occurs with a lag of two months or more depending on the inventory cycle maintained by steel producers”.

He further stated that coking coal is one of the major inputs for steel production apart from iron ore (available domestically) and any decline in the rupee would lead to an increase in the price of coal imported.

Experts in the energy sector are of the opinion that the depreciation of the rupee will drive up the costs of imported components.

“This will increase our import bill in terms of INR and further amplify the need to increase the share of renewables in our energy mix. Securing supply chains of the minerals needed to generate renewable electricity will help to avoid going from dependence on big oil companies to dependence on Grosse Pelle tomorrow.

“Such proactive and comprehensive sourcing and processing will help us to profitably manufacture our energy in India and move towards the energy security we so desperately need,” said Pavan Choudary, Business Intellectual and Chairman of Blue Circle.

Director of the Medical Technology Association of India (MTaI), Sanjay Bhutani, said the medical device industry is already facing the brunt of several inflationary challenges owing to the steep rise in the cost of transportation charges as well as the l limited supply of raw materials.

“The devaluation of the rupiah has worsened the already difficult terrain for the industry and increased the cost of imports of essential medical devices. While we appreciate the government’s commitment to improving the ease of doing business, we hope that some leeway will be given to the industry to absorb these blows,” Bhutani said.

According to the latest data, the country’s imports rose 57.55 percent to $66.31 billion in June from the month a year earlier.

The merchandise trade deficit in June 2022 was estimated at USD 26.18 billion compared to USD 9.60 billion in June 2021, an increase of 172.72%.

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