Infosys, Persistent, Mphasis shares gain after rupee hits record low; Here’s how it benefits them

The Nifty IT index was the only sectoral gauge trading in positive territory on Wednesday, as the rupee weakened sharply. The domestic currency slipped to a fresh record low of 92.28 against the US dollar on March 4.A weaker rupee is typically supportive for IT companies, given that a large share of their revenue is derived from North America and billed in dollars.

Currency depreciation boosts rupee realisations and, in turn, operating margins.
The average rupee rate during the December quarter stood at 89.2. Analysts often cite a broad rule of thumb that every 1% fall in the rupee translates into a 15-25 basis point expansion in margins for large IT services firms.

In the third quarter, the rupee depreciated about 1.7% on average, providing a currency-led cushion to profitability.

TCS reported a 20 basis point margin benefit from currency movements in Q3, while Infosys saw a 40 basis point tailwind.Despite recent volatility, the Nifty IT index is still up 20% so far this year and is trading just 1.5% above its 52-week low.

Infosys emerged as the top gainer on the Nifty. Shares of Mphasis and Persistent Systems were also trading nearly 1% higher in early trade.

Several IT names have rebounded from their 52-week lows. Persistent Systems is up 12% from its trough, Tech Mahindra has gained 11%, Mphasis has risen 10%, and L&T Technology Services has advanced 7%.

Historically, sharp spikes in crude oil prices have often coincided with rupee weakness. For India, oil shocks have frequently translated into currency pressure.

During the Gulf War, the rupee was devalued to ₹24.58 per dollar. In the 2008 global financial crisis, it fell to ₹51.75, while during the Ukraine conflict it crossed ₹80.

From ₹17 in 1991 to ₹92 now, episodes of oil-driven stress have tended to compress years of currency adjustment into a much shorter period.