The fate of the Indian IT sector is somewhat at the mercy of the rupee. However, the sharp run up of the currency is starting to worry the sector, as they fear that the strengthening rupee is something they will have to contend with for a while.

The rupee is galloping again and has appreciated 2.5 per cent in less than a week—a cause of worry for the Indian IT pack as it logs into the earning season.

Typically, every per cent of rupee appreciation has a negative impact of 40-50 basis points on margins for the Indian IT companies.
While short-term impact may be neutralised through gains in hedge positions, the cost structures for these companies will inflate as majority of their expenditure is in rupee and earnings, almost 70 per cent, in dollars.
N Chandrasekaran, CEO of TCS, said, "It’s a problem and we are evaluating the situation. Cross currency fluctuation is a worry."

While short-term rupee appreciation will not be difficult for the IT sector to defend, the markets are clearly expecting it to be a long-term trend.
Beating down the IT pack almost three per cent in trade on Wednesday, the climbing rupee, compounded with a lackluster quarter ahead with less billing days thanks to the holiday season, will certainly put hurdles on the road to recovery for the IT sector.