Rupee hits all-time low; TCS, Infosys, HCL Tech among stocks to benefit from weak currency, say experts

The declining value of the rupee against the US dollar presents a mixed impact on various industries. Some sectors are facing challenges, while others, particularly software exporters, are optimistic about potential benefits in the future. A significant portion of Indian IT services companies’ revenue comes from overseas contracts, particularly in North America.

As a result, the recent depreciation of the INR against the USD should offer these companies a competitive advantage and potentially higher margins, since a large share of their contracts are fulfilled through offshoring, explained Rakesh Vyas, Co-Chief Investment Officer and Portfolio Manager,Quest Investment Advisors.

On Wednesday, the Indian rupee showed slight strength, bolstered by gains in the Chinese yuan and reduced pressure from foreign portfolio outflows, which have consistently troubled the domestic currency over the past two months. Foreign institutional investors (FIIs) became net buyers of Indian equities on Tuesday, investing approximately $430 million after three consecutive sessions of selling.

However, the Indian rupee experienced its lowest closing level on record on Wednesday, affected by ongoing depreciation concerns and strong demand for the US dollar, while forward premiums for the dollar-rupee pair continued to decline.

According to a Reuters report, the rupee closed at 84.74 against the US dollar, marking its lifetime low, down from 84.6850 in the previous session.

Despite gains seen in many Asian currencies, including a 0.2% increase in the offshore Chinese yuan, which rose to 7.28 after reaching a one-year low on Tuesday, the rupee was unable to capitalize on this momentum.

The currency hit an all-time low of 84.7575 on Tuesday, driven down by strong demand for the US dollar in the non-deliverable forwards (NDF) market and the weakness of the Chinese currency. This situation prompted the Reserve Bank of India (RBI) to intervene, as per Reuters report.

INR depreciation so far

According to Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, the INR has depreciated by 0.72 % over the past month and about 1.8% in 2024.

YTD depreciation is mild. But the depreciation has been high post US elections and expectations that the Trump presidency will strengthen the dollar. The US has been attracting a lot of capital flows after the elections, pushing the dollar higher. Trump’s threat to impose 100% tariffs on countries that come up with alternatives to the dollar like BRICS currency impacted sentiments.

Relentless FII selling in the Indian Stock market also contributed to the rupee’s weakness. Rupee depreciation is unlikely to cause any macro problems for India since crude is stable, believes Vijayakumar.

On the other side, Rakesh Vyas highlighted that , since some companies have partial foreign exchange hedging policies, the full impact of the recent INR depreciation on improved margins is expected to be seen starting in CY25.

Which are the IT companies to benefit?

According to Dr. V K Vijayakumar, Rupee depreciation is beneficial to exporters like IT which already have tailwinds from expected higher US corporate spending on technology. Infosys, HCL Tech and TCS among largecaps and Coforge and Persistent Systems among midcaps stand to gain.

“Additionally, the INR has appreciated against other currencies like the GBP and Euro, which could partially offset the positive impact for companies with exposure to these regions. Therefore, companies such as Persistent, LTIMindtree, HCL Tech, Wipro, and others, with over 60% of their revenue from US markets, are better positioned to benefit from this trend,” added Vyas.

Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decision.