IT companies experience currency challenges in Europe

While the UK and Europe have been exceptions for Indian IT companies over the past few quarters, businesses could anticipate to face currency headwinds in the third quarter due to the pound and euro depreciating between 1% and 2% versus the US dollar.

Indian IT companies, particularly those in the UK and Europe, have been negotiating big deals lately as pressure mounts on North America. Approximately 20–30% of their income comes from Europe, which includes the UK.

Several of the largest agreements inked in this fiscal year are from Europe, such as the $1 billion total contract value (TCV) TCS signed with National Employment Savings Trust and Infosys’ $1.64 billion ($1.54 billion) deal with Liberty Global.

In the past four quarters, Indian IT companies have inked numerous mega-deals with European clients. throughout recent years, IT businesses have increasingly increased their presence throughout Europe, particularly in the Nordic and Eastern regions. Their enlarged presence in these areas is contributing to their increasing revenue in Europe.

According to a report by Jefferies, cross-currency will have a negative effect on IT companies. “Due to the depreciation of GBP, EUR, AUD, and JPY against the US$, the aggregate US$ revenue growth for our coverage universe is expected to be 30bps below constant-currency growth.”

Therefore, businesses that are more exposed to these currencies are anticipated to see more cross-currency headwinds, the statement continued. We anticipate 20–80 bps cross currency headwinds for our coverage, with Coforge (high exposure to Europe and the UK) experiencing the largest and LTIM (high exposure to the US) experiencing the lowest.

According to Jefferies analysts, Infosys and TCS will experience cross-currency impacts of roughly 36 and 43 basis points, respectively. In Q3, the impact of Tech Mahindra, Wipro, and Coforge will be 54, 54, and 78 bps (one hundred basis points is equivalent to 1%).

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