As the rupee touched an 8-month high in March, export-oriented sectors like IT and pharma felt the heat. The BSE IT posted its worst monthly performance in nearly a year, while BSE Healthcare saw its worst month in two-and-a-half years.
BSE IT was down more than 10% in March, while BSE Healthcare was down nearly 7%. In the same period, the Sensex clocked gains of 6%.
According to experts, rupee?s appreciation poses one of the major risks for the IT sector. ?We stay confident of shape of demand for FY15. However, strengthening of rupee is a big risk to our thesis,? JP Morgan said in a recent report. Among IT stocks, Infosys (-14.72%), TCS (-7.36%), Wipro (-7.58%) and HCL Technologies (-10.73%) took a beating in March.
Market observers feel pharma companies could take a hit on their margins if rupee strengthens further. ?In FY14, 50% of the margin expansion was due to a sharp depreciation of the rupee. If the rupee appreciates meaningfully, earnings will see a correction as most companies are unhedged. However, companies with better product pipeline and leverage opportunities would be able to absorb the cross-currency headwinds,? said an analyst with a leading domestic brokerage. ?Sharp appreciation of rupee against major currencies could add to cost pressure and result in lower profitability,? UBS analysts added in a report.
Among pharma stocks, Sun Pharmaceutical Industries (-12.32%), Dr Reddy?s Laboratories (-9.81%), Aurobindo Pharma (-2.22%) and Lupin (-4.66%) have seen their share prices fall in March.
Analysts believe the rupee could appreciate to 58 in near-term. ?We expect $25 billion of portfolio flows to put appreciation pressure on the INR to R57-58 per dollar. At the same time, we expect it to settle round R60 as the RBI is likely to buy to recoup FX to push up import cover from 7.5-8 months to the 10 months needed for INR stability,? Bank of Merrill Lynch analysts said in a report.
Meanwhile, in the year-to-date, stocks of pharma companies have done better than their IT counterparts. The BSE Healthcare has gained more than 4%, while IT index has shed 1.29%.
