The boardrooms of Indian IT companies are busy re-strategising their commercial tie-ups separately with both the UK and the European Union that together makes up about 33% of their exports market. The depreciation of the sterling by over 10% is going to eat a fair share of their profits in the coming quarters. As per Crisil, about 7% of Infosys’ revenue in FY16 is denominated in pound, while its exposure to euro is about 9.5%. The corresponding percentages for TCS and Wipro are a tad higher at 13-14% and 7-8% of revenues respectively. Both euro and sterling look weak versus the US dollar. The fear of protectionist policies also looks real. Analysts feel that coping with other uncertainties thrown around by Britain’s decision to leave the common market would take a while, making the transition painful for India’s IT sector. The strong likelihood of both UK and EU slipping into further gloom would weaken the demand for Indian IT exports.
“Yes, the currency depreciation and the likelihood of recession would impact the growth prospects of Indian IT companies for some time, but businesses are not going to stop functioning due to Brexit,” Sangeeta Gupta, senior Vice-President, Nasscom, the lobby group for the Indian IT industry, said. Right now, the IT companies are waiting and watching the developments there. Companies that have large dependency on UK and Europe are evaluating the challenges “which might impact the discretionary spends such as on IT, and would, therefore, hurt their revenues”, feels Crisil. What is feared most is the protectionist policies that both the UK and EU might put in place to protect their commercial interests. Expenses of Indian IT companies may also go up if mobility of professionals between the UK and EU gets restricted. “If those policies are protectionist in nature, we would reach out to our government for its required intervention,” Gupta said. India’s trade competitiveness with the UK might also get impacted if the currency of India’s competitors depreciates. Companies may, over the long term, have to grapple with increased administrative and compliance costs, as they may have to set up base in other countries in the EU. Indian IT companies have to look for alternate markets to mitigate the impact.