Dayanand Menashi

Indian Outsourcing Stocks: Beware The Stronger Rupee

Thomas,
Being in IT consulting industry I can exactly understand your point. You know what is the biggest USP of ACN stock......it is that even though they are the world's biggest outsourcing company, outsourcing is less than 50% of its total revenue.Becausue its consulting revenues is more than that of outsourcing.

2006 figures
Consulting revenues - $9.89 bn
outsourcing revenues -$6.75bn

So for any investor that wants to invest in outsourcing business and also want to play safe....there is just one stock.....u know what I am talking about...

Indian Outsourcing Stocks: Beware The Stronger Rupee

Hi Eric,
Good point on strengthening of rupee. I feel even Cognizant will be equally impacted with this because even it has most of their employees in India who are paid in Indian rupees.

And as well all know Cognizant's maximum revenue comes in Dollars. So as rupee strengthens their revenue remains the same but the costs increase, becuase they have to spend more dollars to convest to rupees to pay their employees.

Following is a simple example :

Let us say Cognizant has a project where they are expecting $1mn revenues each quarter. 40 people are working in India in this project.Avg pay for an employee in this project is Rs25,000 / month which is Rs 75,000 / quarter.

Therefore net pay for 40 people = Rs3mn / quarter.

If for first quarter 1USD = Rs 45.00 then the employee cost for that project for that quarter = $66,666 (Rs 3 mn / 45)

If in the second quarter 1USD = Rs40.00 then the employee cost for the project that quarter = $75,000

This is an increase in $8,344 which is a whopping 12% increase.

CONCLUSION : The impact of gain in rupee is not dependent as to where the company is headquarterd instead it depends on its headcount in India. In fact I dont see how Accenture wont be impacted because it is projecting to have around 50,000 people in India by the end of this year.

Thanks,
Dayanand
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