The Message in India's Rupee Rise
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Analysis: India differentiates itself from China by allowing its currency to appreciate against the dollar
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The empirical evidence of India's enormous economic expansion in recent years &#151; in particular the sharp run-up in stocks there &#151; has proven an irresistible draw to some mutual fund investors. But those chasing the siren song should be aware that, as with any developing economy, there could be bruising stumbles.
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LONDON : The pound was higher against the dollar after the minutes of the Bank of England&#39;s (BoE) last rate setting deliberations revealed a dovish stance.
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Indian inflation hits its highest level in more than three years, boosted by increasing energy and food costs.
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(InfoWorld) - India's largest outsourcer, Tata Consultancy Services (TCS), reported Monday strong growth in revenue and profit, despite theÂ appreciation of the Indian rupeeÂ against the U.S. dollar and higher staff costs in India. The company reported for the quarter ended June 30 revenue of 52 billion rupees ($1.28 billion), up 25.6 percent from the same quarter a year ago. The company's profit for the quarter was 11.8 billion rupees, up 37.4 percent from the same quarter in the previous year. TCS' revenue and profit were, however, flat in rupee terms in the quarter to June 30 in comparison to the previous quarter ended March 31, reflecting the appreciation of the rupee against the dollar. Revenue and profit, however, grew 8 percent quarter-on-quarter in dollar terms. The company added 54 clients and 5,512 employees during the quarter, taking the number of employees to 94,902. Staff attrition rate in the quarter was 11 percent in its IT services business, with the attrition rate higher at 16.7 percent in its business process outsourcing (BPO) business. TCS, of Mumbai, said its net margins were not affected despite the rupee appreciation and a planned wage increase during the quarter, because of better cost management, currency hedging and productivity increases. A strong rupee affects margins of Indian companies as it brings down the value of foreign revenue in terms of rupees, even as costs incurred in India, such asÂ staff costs, are going up. India's second largest outsourcer,Â Infosys Technologies, reportedÂ last week a 40.6 percent growth in revenue and 51 percent growth in profits in the quarter. India's software and services exports are projected to grow by 26 percent to 29 percent to about $40 billion in the fiscal year to next March 31, India's National Association of Software and Service Companies said this month.
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The government evidently has decided to permit the currency to appreciate much faster than before.
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Helped by robust manufacturing, Indiaâs industrial output rose a stronger-than-expected 13.6 percent in April from a year earlier, the government said. But the numbers heightened concerns that the Indian economy might be overheating, growing faster than the pace that can be sustained. It also fueled fears that the central bank might increase lending rates and take steps to restrain money supply growth to cool the economy. While the April growth was slower than the 14.5 percent rise in March, it was stronger than the 11 percent expansion forecast by economists polled by Dow Jones Newswires. The April data showed manufacturing expanded 15.1 percent in April, while electricity generation grew 8.7 percent from a year ago. Mining output rose 3.4 percent.
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Indiaâs economy grew at the fastest rate in almost 20 years in its last fiscal year as companies lifted production to meet surging consumer demand. The economy expanded 9.4 percent in the year, which ended March 31, the biggest gain since 1989 and more than the governmentâs initial estimate of 9.2 percent, the Central Statistical Organization said. Indiaâs economy grew 9.1 percent in the three months to March 31, according to the report, averaging a quarterly pace of 8.8 percent in the last two years compared with 5.7 percent in the 1990s. Manufacturing gained 12.4 percent while mining rose 7.1 percent and electricity output climbed 6.9 percent in the quarter. Agriculture, which accounts for a fifth of the economy, grew 3.8 percent.
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Surging Indian inflation has rattled investors, but the country's policy makers are likely to take it in their stride while they assess the impact of an oil shock and erratic monsoon rains on Asia's fourth-biggest economy.
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There are some signs of cyclical overheating in India's economy, but the recent rise in the rupee has dampened inflation, a government economic adviser said on Wednesday.
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Close on the heels of the&#160;appreciation of the Indian rupee against the dollar, Indian outsourcing companies are grappling with a new problem -- uncertainty among U.S. companies about a recession has made these companies delay finalizing their IT budgets.As a result many large deals between U.S. clients and Indian outsourcers will not be finalized in the first half of this year, said Sudin Apte, senior analyst and country head for India at Forrester Research.Business will however pick up for Indian outsourcers by the fourth quarter, particularly if the U.S. economy is in mild recession, Apte said.&quot;Our experience is that if the IT budgets of U.S. customers are marginally impacted in a recession, then there is an increase in business offshore, to cut costs,&quot; Apte said. If the cuts are too large, whole projects can however get canned, he warned.The U.S. is the largest market for Indian outsourcers.&quot;We believe that the recessionary nature of today&#39;s economic climate will promote the adoption of increased outsourcing,&quot; said Siddharth Pai, a partner at outsourcing consultancy firm, Technology Partners International Inc. (TPI) in Houston, Texas.TPI does not as yet see a cut in either discretionary or non-discretionary spending on IT by companies.Forrester said Monday that the IT services and outsourcing market will increase by 4 percent this year to $162 billion from a growth rate of 6 percent a year earlier.&#160;The research firm forecast slowing growth this year&#160;for purchases of IT products and services in the U.S.National Association of Software and Service Companies (Nasscom), a trade organization in Delhi, however remains optimistic about the growth of India&#39;s outsourcing industry. The industry is optimistic of achieving its target of $60 billion in software and services exports by March, 2010, the association said Monday.In the fiscal year to March 31, the industry expects export revenues of $40.3 billion, up by 29 percent from export revenue in the previous year.Problems for India&#39;s outsourcing industry could get however compounded as its customers abroad have seen a drop in overall satisfaction and a drop in value for money from offshore outsourcing to India, according to a Forrester survey. India is still preferred as an offshore destination because it is the only country where foreign companies can&#160;hire staff in the thousands, Apte said.
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Sterling rose slightly after data out this morning suggested that inflationary pressures are building up.
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The dollar rose against the yen and the euro in London on expectations the Federal Reserve will lift interest rates tomorrow and signal it plans further increases.
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China's yuan shows its biggest post-revaluation rise against the dollar as the central bank signals a shift in its policy.
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The pound has risen to a six-week high against the dollar following stronger-than-expected economic growth data.
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India's economy grows by more than 7% in the first quarter of the financial year - the results are better than expected.
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(InfoWorld) - The appreciation of the Indian rupee against the U.S. dollar is affecting the margins of Indian outsourcers, the president of a trade association said Thursday. It's a difficult time for Indian outsourcers as they are already struggling with rising staff salaries, Kiran Karnik, president of the National Association of Software and Service Companies (NASSCOM), said Thursday. The rise of the rupee against the dollar has Indian outsourcing companies worried, as two-thirds of their business comes from the U.S. The rupee has appreciated against the dollar by about 8 to 9 percent in the last three months, Karnik said. A rising rupee has pushed down exporters' rupee revenues, even as their costs locally go up, he added. To help firms cope with the currency issue, NASSCOM is asking the Indian government to restore some of the export incentives that were earlier provided to Indian outsourcers. However, the government may not be in a mood to extend incentives to the outsourcing industry, which is generally seen as one of the more successful sectors of the Indian economy. Export revenue of a large number of Indian outsourcing companies was brought under the tax net in February after India's Finance Minister P. Chidambaram imposed a minimum alternate tax (MAT) on income that was covered under tax breaks. A large number of the operations of Indian outsourcing companies were set up under an export-promotion plan called the Software Technology Parks of India (STPI), which entitled them to tax breaks. But the STPI plan ends next year. Companies seeking tax benefits now have to move their operations to special economic zones, something that's not feasible for outsourcing firms, which have operations in multiple locations close to where staff are available. NASSCOM wants the STPI plan extended, and the MAT rolled back in the wake of the rupee appreciation, Karnik said. India's Minister for Commerce and Industry Kamal Nath promised earlier this week a package for exporters, in the wake of the appreciating rupee, but didn't outline specifics.ADVERTISEMENTIBM Information On Demand 2006Industrial Industry Leaders, please join us at IBM's premier information management global event, IBM Information On Demand 2006, October 15-20, Anaheim, CA. More IBM business and technical solutions content in one place than ever before! Select from  over 800 sessions. Register today!