IT cos struggling with cross currency risks
SOURCE: MoneyControl
DATE: Feb 19th, 2009
The troubles of Indian IT never seems to end. Now, Indian IT firms have been negotiating hard with clients to protect themselves from cross currency risks––a request that’s not been taken kindly by clients. CNBC-TV18’s Kenan Machado’s reports.
For long, moving to non-US markets was considered to be diversifying region-specific risk––not any longer. Cross-currency risk is the new buzzword in IT contracts post the third quarter. Hit by massive currency fluctuations between the US dollar and non-dollar currencies, Indian IT firms are trying hard to renegotiate contracts.
However, that is easier said than done.
Neeraj Bhargava, CEO, WNS, says, “I think a lot of clients do expect the vendor to bear the risk, and in that context, I think we’re expected to hedge the risk and we usually, in our contracts, include the price of hedging as a part of our cost structure. So that’s another way to do it.”
Industry experts say this is a possibility only in new contracts. Most of the existing clients have flatly refused to any tweaking in contract clauses as they feel managing cross currency risk is the vendor’s headache.
Sample this: Tata Consultancy Services whose dollar revenue is the least of the big four was the worst affected Indian IT company in third quarter this year.
And though the rupee depreciated against the dollar by close to 11%, the pound fell 18% against the dollar, the Australian dollar by 23% and the euro by 12%.
With no respite in sight, companies like Wipro have been going back to the basics. Suresh Vaswani, Joint CEO, Wipro, says, “To sort of mitigate the risk of cross currency, we are going for cross currency hedges. We are also trying to make sure that if I am doing business in the UK, I do it in GBP. Or I do it in euros, if I am doing business in Europe.”
No relate
You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.
