Strengthening of the rupee to impact IT and Pharma sectors

Indian Rupee has appreciated significantly in March quarter on account of rising optimism in emerging markets led by huge FII inflows. Currency appreciation is favourable for import oriented sector but it is worrisome for export oriented sectors.

Rupee has seen almost 5 per cent gain since the last quarter of FY17 with growing investor confidence in the economy. FII inflows increased 3984.86 crore in current quarter, indicating rising confidence in the Indian economy. The huge election victory of NDA also gave stable outlook to foreign portfolio investors.

Nevertheless, the appreciating currency will take a hit at earnings of export oriented sectors such as Information Technology and Pharmaceutical. Major IT players like Infosys, TCS, Wipro and HCL have more than 60 per cent revenue contribution from US, except Tech Mahindra which has 48 per cent exposure to US.

Information Technology and Pharmaceutical sectors are already facing many headwinds, ranging from H1-B visa approval issue to rising inspection by USFDA on Indian pharma facilities, all of which are expected to have a negative impact on earnings. In addition to this, the appreciating Rupee is further magnifying the negative impact on earnings.