Rupee fall gives BPOs some relief from Philippines

it voice RupeePartho Sarkar, CEO of BPO firm Hinduja Global Solutions (HGS), is among those who are happy about the rupee’s fall against the dollar. The BPO business in India has taken a bit of a knock, thanks to the growing competitiveness of the Philippines and the withdrawal of the 10-year tax holiday that the Indian government previously extended to the IT/BPO sector.

“The weakening rupee will make us more export-competitive. India has lost a lot to the Philippines,” says Sarkar. About 32% of HGS’s revenues are dollar-denominated. The Philippine peso too has depreciated against the dollar since May, but far less than the rupee.

Philippines has over the past decade emerged as a strong contender to India, particularly in the voice BPO space. India’s BPO revenues now are at about $16 billion annually, while that of the Philippines is about $13 billion.

The falling rupee is catalyzing growth for the export-focused Indian IT/BPO companies. And coming on top of the recovery in the US economy, the benefits are likely to be particularly good. Every percentage point decline in the rupee adds 30-40 basis points to an IT/BPO company’s operating margins.

Reflecting that, the BSE IT index has outperformed the broader sensex and all other sector indices in recent months. And the share price increases of IT companies have substantially pushed up their market valuations.

Abraham Mathews, CFO of Infosys BPO, said companies decide to outsource based on the value proposition and cost arbitrage. “It’s too early to say if clients are moving outsourcing work to India to take advantage of a sliding rupee. I think companies will take six months to adjust to the new cost structure,” he said.

IBMNonetheless, there are signs that outsourcing is growing. Retailer Sears Canada is laying off 245 workers and is outsourcing IT positions to Wipro and IBM in India and the Philippines. IBM is laying off workers in the US and moving them to places like Brazil, India and China.

wiproTalking about the stock price movements of IT companies in recent times, CSS Corp CEO Tiger Ramesh said stock markets look primarily at the fundamentals of the core business and operational efficiency of a company. “They discount any benefits you get by way of forex movement,” he said.