TCS, HCL suffer as Infy rejoices on forex gains

On the back of anticipated higher returns by Infosys, the BSE IT Index rose by a sharp 5.2 percent in the past week compared with the Sensex, which rose by 2.8 percent during the same period. However, the dismal performance of IT companies like TCS and HCL Tech wiped out most of those gains early this week.

The sharp depreciation of the rupee for the quarter ended September 2011 - it plunged 11 percent against the greenback - took corporate India by surprise as many companies had already hedged their foreign exchange positions. For IT companies, hedging plays a very important role as almost 90 percent of their revenues are derived from overseas.

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[caption id="attachment_110722" align="alignleft" width="380" caption="Infosys was the only company among the tier-1 companies to report a rise in net income. AFP"][/caption]

Due to the poor performance by TCS and HCL Tech on the forex front , the BSE IT index declined by 3.9 percent on Tuesday. Both TCS and HCL Tech fell more than 8 percent each as they both reported a fall in profits because of forex losses.

For the September-ending quarter, TCS lost Rs 91 crore due to adverse forex movements, while HCL Tech lost Rs 17.9 crore. However, this could well be just the tip of the iceberg as TCS' management said yesterday that it had hedged $2.5 billion in revenues over the next two quarters and expects to maintain margins only if the rupee-dollar exchange rate remains at 46 or higher.

However,Firstpost had earlier noted that "with the rupee trading around Rs 49 to the dollar, forex losses can mount going forward".

HCL Technologies' net profit also fell by 2.7 percent for the quarter ended September vis-a-vis the previous quarter.

Infosys was the only company among the tier-1 companies to report a rise in net income as it posted better-than-expected numbers. Lower- than-expected forex losses helped the company report a sharper rise in profits. Indeed, the currency'sdepreciation also helped the company's operating profit margin expand to 28 percent from 26.1 percent earlier.

Going forward, a lot will depend on the management commentaries and their guidance on exchange rates.