Record low Rupee boosts IT stocks, triggers stock market recovery

The currency fell to a record low of 96.3 against the US Dollar on Monday, May 18. The fall in the currency has boosted the fortunes of Indian IT companies, Infosys, TCS, Tech Mahindra, and Midcap IT names like Persistent Systems and Coforge.This surge in IT stocks has also sparked a recovery in Indian equities, with the Nifty 50 index recovering over 250 points from the lows of the day on Monday.

Shares of Coforge and Tech Mahindra are trading with gains between 4% to 4.5%, while those of Persistent Systems, Oracle Financial Services, Mphasis are trading with gains between 3% to 4%.
Infosys has moved to the day’s high, currently trading 2% higher, while TCS and HCLTech are also trading with gains of up to 1%.

How A Weak Rupee Benefits IT

A weaker currency is generally positive for Indian IT companies. Most of the IT companies get their revenue from the US Market, predominantly in the US Dollar, along with other foreign currencies, including the Euro.However, most of their employee costs or operational expenses are in local currency, thereby providing a boost to their margins. Analysts say that every 1% depreciation in the currency can boost the margins of these companies by 20 to 30 basis points.

Stock Market Recovery

The boost to IT stocks, coupled with a recovery in index heavyweights, HDFC Bank, and Reliance Industries, has triggered a sharp recovery on the Nifty 50 index, which has recovered over 250 points from the lows of the day.

The Nifty IT index is the top sectoral gainer, trading with gains of over 2% and all constituents of the index are trading higher.