The appreciating rupee had its toll on the IT sector recently. All the big players TCS, Satyam,Infosys reported considerable loss is revenue due to the rising rupee. This led to a fall in the price of the shares of these big players. IT is no longer seen as an attractive sector for investment.
I think this perception is flawed for one reason that I am going to site now. The rising rupee and the consequent fall in revenue will erase the small and medium players who operate at very low margin from the market. This will lead to a fall in supply of IT services. On the other hand the demand for outsourcing more and more work will increase because the US companies will try to reduce their cost by more offshoring.The net effect will be an increase in the price of IT service and also an increase in the quantity of IT service demanded(this is law of demand and supply). This will lead to an increased revenue.This trend is already showing as these big players are able to renegotiate their prices with existing customers to increase it by 2-5%.
Per my view the increased volume of business coupled with a higher price will outplay the effect of revenue loss due to the rising rupee in the IT sector. So, I guess if we are investing on the big players(like Infosys,TCS,Satyam,Wipro) in the IT sector we can reap the benefits later.
