Appreciating rupee will not affect BPO: RBI

Last updated 5:45 pm, Wednesday, November 14, 2007.

By Sakshi Kundra

Chennai: “BPOs already have a 30 percent profit margin and it won’t effect them much if their profit comes down to 20 -25 percent,” said RBI Foreign Exchange Director (Chennai) B.N. Anantha Swamy in response to a query on whether the appreciating rupee would impact the profitability of the ITES sector.

However, Wipro CFO Suresh Senapathy said in a recent interview to Business Today that, “Every 1 percent of appreciation of the rupee impacts margins by about 40-45 basis points.” According to the mid-term review released by RBI on Oct. 31, “The rupee appreciated by 10.3 per cent against the US dollar.”

But the RBI is unlikely to come to the BPOs’ rescue. Its concern is “maintaining the balance of payments and tackling trade deficit,” said Swamy. He explained that “the RBI doesn’t make its policies targeting specific sectors and so no policies are expected for the ITES sector.”
Cognizant Technologies’ Chennai Corporate Marketing and Communications Manager K Ramchandran dismissed fears of downsizing as speculation and said, “It is too early to predict long term impact of the stronger rupee.”
Pointing out that currently most IT firms use only 60 percent of their work force in revenue generating activities, Ramachandran said the rest work in support departments such as training and maintenance. “These people can always be mobilised in operations to cut costs,” he predicted. Ruling out the possibility of any cut in intake, he emphasised that for the next one year at least, the industry would continue to grow.

However, Ramachandran also said that the “Tier II and Tier III IT companies would be the most affected as they have smaller margins. They have no levers to offset unlike Tier I companies who have a stronger global base and are in a position to re-negotiate prices with their customers.”
Ramchandran added that companies which have a global base are “most insulated” as their payments don’t come in dollars alone.”

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