Jefferies believes that the 1-3% depreciation in INR against USD, EUR, and GBP will benefit Indian IT companies, particularly LTIMindtree, Wipro, Sagility, and Coforge, which have higher exposure to these currencies.
The brokerage has raised earnings estimates by 2-5% for select IT stocks to account for favorable forex movements. However, it has lowered target PE multiples by up to 15%, citing higher US yields and a broader PE de-rating in the Nifty.
Among large-cap IT firms, Jefferies prefers Infosys, LTIMindtree, and TCS, while Coforge, Sagility, and Mphasis are its top picks in the mid-cap segment.

 

Rupee depreciation benefits IT companies primarily because most Indian IT firms earn a significant portion of their revenue in foreign currencies, especially in US dollars (USD), Euros (EUR), and British pounds (GBP), while a large part of their expenses (like salaries and operations) are in Indian rupees (INR). Here’s how it works:
1. Higher revenue in INR terms:
• IT companies bill their international clients in USD, EUR, or GBP.
• When the rupee depreciates, the same amount of foreign currency translates into more rupees when converted.
• For example, if $1 = ₹80 and the rupee depreciates to $1 = ₹85, the company earns ₹85 instead of ₹80 for every dollar of revenue.
2. Cost advantage:
• Most expenses, like salaries and office costs, are paid in INR.
• If revenue increases due to a weaker rupee but costs remain largely the same, profit margins improve.
3. Competitive pricing for global clients:
• A weaker rupee makes Indian IT services cheaper for global clients compared to competitors in stronger currency regions like the US and Europe.
• This helps Indian IT firms win more outsourcing deals.

 

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