17 Apr 07 Rupee breaches 41.75 mark – Spells trouble for IT companies
The Indian rupee has risen to 41.72, which is its strongest level against the dollar since May 1998. This will lead to a huge drop in profit margins for Indian IT companies. Markets have realised this and already the IT stocks have been beaten badly.
In anticipation of the rise in rupee, all the major Indian software companies have gone in for some protection. TCS is said to have obtained a $1 billion hedge at a price range range of 43.50 – 44. Infosys Technologies has a forex cover of $ 470 million. Currency risk can be mitigated in 2 ways. The most common way is to hedge, by selling dollars future and buying rupees through the rupee dollar futures market. The other way to mitigate risk is by buying put options. However, both these methods have their own “costs” attached with them.
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