Indian sunrise sector, IT industry was reeling under pressure to keep its profit margin throughout the last year. The reason was Indian Rupee was gaining strength against Dollars. Results, the imports became cheaper and exports were less remunerative. This is obvious every time Rupee appreciates in terms of Dollars. Dollars being till date the major currency for international trade, the fluctuation of exchange rate affects the profit margin of any industry that either import raw materials, capital goods, labor or anything and so with the industry that exports similar goods or service. Major IT companies like Infosys, TCS, Wipro, Satyam and all other that sell their products or services, suffered loss in comparison to their profit margin for previous couple of years. Their share price shot up and market capitalization grew to a level, never seen ever, it touched its zenith in late 2007. The prolonged euphoria lasted so longer than expected in Indian stock market is truly nerve wrecking for many.
The apprehension came true with the US sub-prime crisis. With down trend in US economy, their imports were the first to be downsized. Many software and financial companies reduced their man power to arrest increasing loss. Indian software companies were already under pressure with strengthening of rupee against dollars. Many were cutting down the perks of their employees to cut down the cost; few took a step ahead by showing doors to their under performing employees. Still there is an air of uncertainty prevailing in these companies. Since the US imports of their service is taking a southbound turn, so with rest of the world. After all, globally, the strength of economy couches on US demands. A recession in US is likely to spread the same to mostly in the developing countries. The developed countries have their own demand base. Their own industries survive feeding their own demand as in European Unions. Though, they too are not completely immune to the adverse trend of global demands. Here again lots of their goods and service are exported to developing nations, with the fall in demand in developing countries , obviously their sells get reduced. So, it has a chain reaction.
To cap it all , the oil price has zoomed to sky, sucking non-oil producing countries maximum portion of total export bills. This applies to all, developed, developing and poor countries equally. What varies that depend upon the quantum of demands. The developed nations can bear the burden with their own accrual of resources and exports. The developing countries suffer heavily because their exports are falling in tandem with US and global recession; the balance of payment position is getting worsened. The poor nation’s plight is imaginable.
But there is silver lining around dark clouds, it is said. With the oil price hike, at least with the Indian software industries are finding better days. Oil import bills rising high the demand for dollars is increasing two folds comparing to this time of last year. The demand of dollar as increases, you pay more to buy dollars. That way rupee value is decreasing against dollars. So now you pay more in terms of rupee to import and get more while you export. That is why the software companies, who mostly export their product or services, stand to earn more for same amount of exports. You find that is being reflected in the movement of their share price, the market is taking cognizance of the situation.
All that is bad, is not so bad for lucky few, though they are at receiving end.