As a result of the falling rupee, the costs of information technology in India could be significantly reduced. Here are some possible scenarios:
1) India-based IT companies would significantly increase their earnings and free cash flow, making more acquisitions possible. This is a short-term perspective. In the long run, however, it is a scary position to be in. The overall costs of doing business will increase due to massive inflation, resulting in high salaries and narrowing margins. This is something that cannot be reversed if the rupee appreciates in the coming months.
2) Non-India-based IT companies would expand their presence in India due to significantly increased buying power of the dollar and euro versus the rupee.
3) Companies that are looking at captive centers, as opposed to outsourcing, need to tread carefully. While the current situation seems ideal to pursue a captive strategy, as the rupee strengthens, returns on investment will diminish.
4) Venture-funded technology startups would view India as a favorable opportunity. The power of the dollar would become significantly attractive as venture capitalists try to hedge risks.
5) The falling rupee also impacts the real estate sector. This is a good opportunity for IT companies to expand their campuses as a good bet on appreciation.
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