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Indian IT firms brace for currency headwinds in Europe, UK

While Europe and the UK were outliers for Indian IT companies for the last few quarters, firms are expected to experience a currency headwind as Pound and Euro have depreciated against US dollar in the range between 1-2% in the third quarter.

As North America continues to be under pressure, Indian IT companies have been recently signing large deals, especially in the UK and Europe. Europe, including the UK, contributes about 20-30% of their revenue.

Many of the top deals signed this financial year, including TCS partnership with National Employment Savings Trust, for a total contract value (TCV) of about $1 billion, and even the Infosys’ deal of €1.5 billion ($1.64 billion) from Liberty Global, are from Europe.

Many other mega and large deals have also been signed by Indian IT firms with European clients in the last four quarters. IT companies have also been ramping up their presence in Europe, especially in the Nordic region and Eastern Europe in the recent past. Their increased footprint in these regions is helping them boost their European revenue.

Jefferies in a report said that IT companies will be adversely impacted by cross-currency. “Aggregate US$ revenue growth for our coverage universe is expected to be 30bps below constant-currency growth, due to depreciation of GBP, EUR, AUD, and JPY against the US$.”

It added, “As a result, companies with higher exposure to these currencies are expected to witness higher cross-currency headwinds. We expect cross currency headwinds of 20-80bps for our coverage, with the highest for Coforge (high Europe/ UK exposure) and lowest for LTIM (high US exposure).”

Analysts at Jefferies expect that the cross-currency impact for Infosys and TCS will be about 36 and 43 bps (basis points). Tech Mahindra, Wipro and Coforge will have an impact of 54, 54, and 78 bps in Q3 (hundred basis points equals 1%).

Analysts at Nomura said US dollar appreciated qoq (quarter on quarter) against all major currencies in 3Q of FY24. They expect marginally negative impact (of ~10-110bp) of cross-currency movements on their coverage universe. Financial Express

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