Currency-driven relief is tempered by growing macroeconomic uncertainty
The recent depreciation of the Indian rupee against the US dollar is expected to offer a short-term margin cushion for Indian IT services firms, even as macroeconomic headwinds from the US cloud the longer-term outlook.
With the rupee breaching ₹87/USD and most IT exporters like TCS, Infosys, Wipro, and HCLTech billing in dollars while incurring costs in rupees, analysts estimate that every 1 per cent rupee fall can boost EBIT margins by 20–25 basis points.
With 50-60 per cent of revenues for Indian IT companies derived from the US, and a significant portion of expenses, primarily employee costs, incurred in Indian currency, the current depreciation is likely to support earnings in the near term.
Alongside, the NIFTY IT Index has dropped 20 per cent year-to-date, while the broader BSE Sensex has declined by less than 1 per cent over the same period.
High Rate
“Depreciating INR vs USD is always a positive scenario for Indian IT. For the quarterly or annual revenues, we consider the average quarterly or annual rate. Only if the USD/INR rate stays elevated from current levels on a sustainable basis in the next few quarters can we see a weaker INR-led better top-line growth from current street estimates. If we consider approximately 1 per cent depreciation in INR v/s USD in FY26 from our current estimated average rate of 85.9, then the INR-led top-line will grow by 1 per cent,” Dhanshree Jadhav, Lead Analyst – Technology Choice Institution Equities, explained.
Though the employee billing costs will increase by 30-40bps, the remaining 60-70bps top-line growth will benefit the margins. On the contrary, if there is around 1 per cent appreciation in INR v/s USD in FY26, there will be a similar negative impact on margins.
On an overall basis, she said, a weaker USD/INR rate on a sustainable basis augurs well for Indian IT companies, which bill clients in INR. However, with the rising delivery costs, passing on the currency benefits to clients might result in a slightly lower benefit than 60-70bps.
Siddharth Tyagi, Research Analyst, INVasset PMS, observed that this currency-driven relief is tempered by growing macroeconomic uncertainty due to the US’s evolving trade stance.
Stronger push
The administration recently signalled a stronger push toward domestic job creation and import substitution, including potential increases in tariffs and tightening outsourcing-related norms. These measures may affect the demand environment for offshore IT services, particularly in discretionary spending segments.
“While the recent depreciation of the rupee provides a tactical advantage to Indian IT exporters, the strategic risks associated with rising US protectionism could limit the extent of relief. The sustainability of margin gains will ultimately depend on how global clients respond to regulatory and macroeconomic shifts in the months ahead,” Tyagi added.
Similarly, Navy Vijay Ramavat, MD, Indira Groups, expressed bearishness on the IT sector. She said the industry’s future is highly uncertain.
The traditional model of charging US clients lower rates while paying Indian wages faces mounting pressures. Automation, rapid technological shifts, rising domestic costs, and fierce global competition are fundamentally changing the business landscape.
The advantages that powered Indian IT’s growth for decades are eroding, and the sector must adapt to survive. While currency movements may give a temporary boost, the long-term outlook remains unclear, and the industry faces significant structural challenges, she concluded.
Published on August 1, 2025
