Sharp depreciation of rupee against US dollar is emerging as a near-term cushion for Indian information technology services companies, helping support profit margins at a time when demand growth remains weak, and concerns around artificial intelligence-led disruption continue to weigh on the sector.
Rupee, which recently slipped beyond 96 against dollar, has become one of the worst-performing Asian currencies in recent weeks. Analysts say the currency movement is likely to benefit export-heavy IT companies because a large share of their revenues comes from North America and Europe and is billed in dollars.
Brokerage estimates suggest rupee depreciation could improve operating margins of Indian IT firms by 10-60 basis points, partially offsetting pressure from slowing discretionary spending, delayed deal ramp-ups and AI-driven pricing compression.
IT stocks are also seeing some recovery due to the rupee fall. Infosys’ CFO Jayesh Sanghrajka said during the company’s Q4 press meet that: “(Some margin) headwinds were offset by 40 basis points from currency and 30 basis points from Maximus.”
However, several brokerages remain cautious on the sector’s broader outlook despite the currency benefit.
JM Financial expects revenue growth for the top 10 Indian IT firms to remain around 3% in FY27, lower than earlier expectations of 4%. The brokerage said concerns over AI-related deflation and weak demand visibility could prevent a near-term re-rating of the sector.
UBS also flagged a “clear divergence” between large-cap and mid-tier IT firms after mixed fourth-quarter earnings. Infosys, HCLTech and Wipro issued weaker-than-expected guidance for FY27, while companies such as Coforge and Persistent Systems showed stronger momentum backed by deal wins and margin improvement.
Infosys, India’s second-largest IT services company, projected FY27 revenue growth of 1.5% to 3.5% in constant currency terms.
Motilal Oswal warned earlier this month that AI-led automation is beginning to compress traditional outsourcing revenues faster than new AI opportunities are scaling up. The brokerage said pricing pressure and shrinking project sizes could weigh on growth in FY27.
Nomura, however, sees early signs of recovery for the sector in FY27, driven by stabilising macroeconomic conditions and increasing monetisation of AI-related services. The brokerage expects large-cap IT firms to report margin expansion of around 30 basis points in FY27, while mid-tier companies could see an improvement of about 50 basis points.
While the rupee depreciation is unlikely to solve the sector’s deeper challenges but may provide breathing room over the next few quarters.