it sector and recession

7/31/2019 IT Sector and Recession

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BY

Akshay Madhava


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About the study The FOREX revenues are a major source for the IT players in India.

The last 14 months has seen a sharp fluctuation in Rupee and Dollarrates.

IT companies are facing a huge problem on account of the volatility inthe currency exchange rates.

The major focus is on the IT firms because it is the only industry thathas taken a huge beating due to this volatility.

The reason for the IT companies in India to worry is the investment itused to get from the US market.

The rupee has become stronger and the US is looking at other lowcost service providers.


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About the study (Contd.)

This is one of the biggest issues the IT majors are concerned about.

But the impact has not been very big because of careful steps takenby a few IT majors.

The IT companies having high FOREX Exposure have made sure thatthe present slides are not going to affect them as they have indulged in

hedging their respective currency risks.


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Over the past decade, the Information Technology (IT) industry hasbecome one of the fastest growing industries in India.

The industry accounts for more than a quarter of Indias servicesexports.

The key segments that have contributed significantly to the industrysexports include Software and services (IT services) and IT enabledservices (ITES).

Information Technology Enabled Services (ITES) is a large, fast-

growing worldwide industry fueled by customers seeking efficiency andcost-savings from outside vendors.

The chief advantage of India in this market is low cost labor andlanguage speaking skills.


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Industry Profile (Contd.)

The Industry is one of the major contributors to the nations GDP.

Software & Services will contribute over 7.5% of overall GDP growth ofIndia.

IT export will account for 35% of the total exports from India.

Potentials for 2.2 million jobs in IT by 2008.

IT Industry will attract FDI of US $ 4.5 billion.

Market capitalization of IT shares will be around US $ 225 billion.


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Industry Profile (Contd.)

MAJOR PLAYERS Tata Consultancy Services

Infosys Technologies

Wipro Technologies

Satyam Computer Services

Patni Computers Systems

HCL Technologies

Mindtree Services

i-Flex Solutions

Polaris Software Labs

Hexaware Technologies

Perot Systems


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Company Profile

VISION

To be a global leader, committed to the customer in providing

the technology solutions with the highest degree of excellence,

quality and value by an agile team and efficient process.

MISSION

To understand and empower client organizations through world-class

consulting services in the area of Enterprise Solutions in the context ofturnkey development and commercial off-the-shelf packages and alsoin the area of technology solutions covering Embedded Systems andsystem Software. To commit us to the highest degree of excellenceand customer support with a view to providing superior value to clients.


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Company Profile (Contd.)

HIGHLIGHTS & SNAPSHOTS

Publicly listed company in INDIA.

500+ employees worldwide.

Global presence- Offices in India, Singapore, USA (Chicago,

Cupertino & Detroit), Japan, & UK

Certified in ISO 9001:2000 and assessed at CMMI maturity level 3 forall its development and support operations.

Industry Vertical: Manufacturing, Oil & Gas, Consumer Electronics,Growth Industries, Telecom, Public Utilities & Retail

52% of customers FORTUNE 500

92% of business is Repeat Business


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SWOT ANALYSIS


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Type of Study: The type of research used for the study is descriptiveresearch.

Type of Data: Primary and Secondary Data

Sources of Secondary Study: White Papers, Websites, Research

Articles, Industry Reports

Tool's for Data Collection: Interaction with employees.

Techniques of Analysis: Using statistical techniques and decisionmodels.

Sampling plan: Random sampling.

Sample Design Period considered for research 2006 to present. The cost of capital for the study has been considered as 15%


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Analysis

The information like PAT,ROCE, Sales were collected in order to get a

detailed comparison of the FOREX Exposure with different parameters.The analysis also contains the extent of relationship between FOREXExposure and different parameters.

The FOREX Exposure is calculated by using the formula:

= h1+ (h1-h2)*(1/r 1).

Where, h1= ratio of FOREX Revenues and Total Revenues, i.e,

FOREX Revenues/Total revenues.h2 = ratio of FOREX Expenditure and Total Expenditure.

r = Weighted average cost of capital of the industry.

DATA ANALYSIS.doc
http://data%20analysis.doc/http://data%20analysis.doc/


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Findings

Majority of the firms covered in this study have already hedged their

FOREX risk and are not majorly affected by their respective FOREXexposures.

The currency risk has brought down the revenues of the IT sector byaround 6%.

All the firms dealing in exports and imports are bound to face theimpact of fluctuations of the currencies.

The companies can cover the risk of currency fluctuation by hedging.

The companies use different tools of hedging suitable for them to do

away with the currency risk affecting their revenues.

Companies hedge using forwards and options if they are looking tohedge for a short period and expect the rates to stabilize soon.

If the company wishes to hedge for a longer period it can hedge usingswaps.


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Suggestions

The company must always keep a watch on the currency rates forchanges or stability.

ASM Technologies has to be more aggressive in its approach to

hedging. Although it has hedged its FOREX risk, it can do it moreprofitably as told by the company personnel themselves.

The company has to focus more on exports and has to target servicesin the US market as it will be more profitable when the dollar is

stronger to the rupee. This is important because ASM Technologieshad to forego a contract due to their unpreparedness and lack of bufferemployees.


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Suggestions (Contd.)

The company has to recruit more employees in the Financedepartment because there is excess work and the strength of thedepartment is just 5.

The employees at ASM have to be subjected to more of languagetraining as they are not very good communicators.

Marketing department at ASM focuses more on repeat business andare not aggressive when it comes to new businesses. This has to be

seriously looked at appropriate steps taken.


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My Learning

The study on Foreign Exchange exposure of different IT companiesand the risk associated with the exposure has helped me tounderstand the extent to which a company can be affected by currency

fluctuations.

It also helped me to understand different techniques of managingFOREX Exposure risk.

It also helped me to understand different methods of hedging and asto how the companies decide on the type of hedging.


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My Learning (Contd.)

It has also given me an opportunity to get an insight into the waysvarious departments in the organization function.

It has given me deep insight into different financial instruments likeOptions, Forwards, Futures etc

The study has also helped me in understanding the methods ofcalculating the FOREX exposure, analyzing the effects of the exposure

and interpreting the results thereof.

it sector and recession

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