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FY20 should see more revenue acceleration for IT companies, says Macquarie Capital

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To discuss the outlook for the IT industry and demand trend, CNBC-TV18 spoke with industry experts including Anand Deshpande, MD & CEO of Persistent Systems and Abhishek Bhandari, senior research analyst at Macquarie Capital Securities.

Even in a falling market, the IT stocks were holding up on the back of rupee depreciation.
To discuss the outlook for the IT industry and demand trend, CNBC-TV18 spoke with industry experts including Anand Deshpande, MD & CEO of Persistent Systems and Abhishek Bhandari, senior research analyst at Macquarie Capital Securities.
"It is too early to revise margin guidance because of rupee depreciation. A one percent rupee depreciation benefits EBITDA margins by 25 basis points and beyond that it also depends on the forex hedges," Deshpande said.
“Usually, 60 percent of company’s expenses are naturally hedged because they are not in rupees and earnings are there and for rest of the money, we have been buying one-year forward covers for half of our potential expected earnings,” he said.
"If the rupee stays around the 72 to the dollar level then there could be some positive impact, and the benefit will be seen in the EPS level by end of the financial year," said Deshpande.
Bhandari said that the range of hedging varies significantly across IT companies.
"Some largecaps have hedges between one to three quarters or even four quarters. In some micaps like L&T Infotech has more than one-year of currency hedging," he added.
Among the largecaps, TCS is the one that will benefit more due to falling rupee and in midcaps it would be Persistent System, according to Bhandari.
Speaking on the industry outlook, Bhandari said, "The commentary from companies have been positive in terms of revenues. Moreover, net hiring has also started picking up in the IT sector as well large deal momentum has been strong across Indian IT companies".
“Net-net there is positivity around the sector, and FY20 should see more revenue acceleration compared to FY19,” said Bhandari because the impact of US Tax rate cut is yet to come through.