Rupee Depreciation May Lift Indian IT Earnings Optics, Not Growth

The weakening rupee is providing a crucial buffer for Indian IT services companies, supporting margins and reported growth at a time when underlying demand remains subdued. However, analysts caution that these currency-led gains are masking a softer operating environment rather than signalling a recovery.

Between January 1 and April 1, 2026, the rupee depreciated by roughly 3%, falling from around ₹90.01 to ₹92.74 against the US dollar. On a year-on-year basis, the currency has weakened more sharply, from about ₹83.4 per dollar on April 1, 2025. For a sector where more than half of revenues are dollar-denominated, this movement is materially boosting reported earnings.

As the sector heads into the fourth-quarter earnings season, constant-currency (CC) growth, a key indicator of underlying business momentum, is expected to remain muted. 

Constant-Currency Numbers Reveal Demand Weakness

Nomura, in its April 2 India IT Q4 expectations report, estimates sequential CC revenue growth of around 1% for Tata Consultancy Services, -1% for Infosys, and -0.3% for HCLTech, highlighting continued demand weakness.

In contrast, reported growth is likely to appear stronger, aided by favourable currency movements. Nomura estimates cross-currency tailwinds of 10–70 basis points across its coverage universe for the quarter.

This has translated into modest margin support. Continued depreciation of the rupee against the US dollar is expected to aid margin improvement, although a significant portion of these gains may be passed on to clients during contract renewals or reinvested into artificial intelligence initiatives.

Historically, such currency movements have played a similar role. During periods of rupee weakness, including the 2013 taper tantrum, the 2018 oil-driven selloff, and the 2022 global tightening cycle, Indian IT companies benefited from short-term margin expansion due to their export-heavy revenue mix. 

However, these gains have typically coincided with global macroeconomic stress, which in turn weighs on discretionary technology spending.

As a result, currency tailwinds have tended to cushion earnings rather than drive sustained growth.

That dynamic appears even more constrained in the current cycle. Unlike earlier periods when vendors retained a larger share of foreign exchange gains, ongoing pricing pressure, vendor consolidation, and rising investment requirements, particularly in AI, are limiting the extent to which these benefits flow to the bottom line.

Equity markets are already reflecting this divergence. Vinod Nair, Head of Research at Geojit Investments Limited, said recent gains have been largely confined to sectors such as IT, supported in part by rupee-related benefits, even as broader market breadth remains weak.

“Gains remained largely confined to IT, FMCG, and metals, while broader market breadth stayed weak, reflecting persistent caution. IT stocks advanced on valuation comfort and support from INR-related benefits,” Nair says.

The rupee’s weakness itself is being driven by external pressures. 

According to Jateen Trivedi, VP Research Analyst, Commodity and Currency at LKP Securities, the currency remains under pressure amid rising geopolitical risks and elevated oil prices, with disruptions around the Strait of Hormuz keeping energy markets tight and weighing on oil-importing currencies such as the rupee.

Guidance Likely to Stay Cautious

Motilal Oswal Financial Services attributes the recent depreciation to a combination of geopolitical tensions, elevated crude prices, and capital outflows, describing the current environment as one shaped by global shocks. Within this backdrop, export-oriented sectors such as IT are natural beneficiaries of currency weakness.

At the same time, the brokerage notes that Indian equities tend to deliver weaker performance in dollar terms during periods of currency depreciation, even when earnings growth remains stable. This divergence between local earnings resilience and global return metrics can influence foreign investor positioning.

For the IT sector, the picture remains nuanced. While currency movements are providing near-term support to margins and reported revenues, they do not address the underlying demand environment. Macroeconomic uncertainty and elevated energy prices continue to weigh on client spending, particularly in discretionary areas.

As a result, companies are expected to maintain a cautious stance in their FY27 outlooks. Nomura expects guidance to reflect ongoing macro uncertainty, with growth likely to remain modest unless demand conditions improve.

The widening gap between constant-currency performance and reported growth underscores the extent to which currency is shaping current earnings. While rupee depreciation is helping stabilise financial performance in the near term, it is functioning more as a buffer than a structural growth driver.

For Indian IT services firms, the immediate benefit of a weaker rupee is clear. But as the sector navigates soft demand and structural shifts, sustained growth will depend less on currency movements and more on a recovery in client spending and execution in new technology areas.

The Q4 earnings season for Indian IT is set to commence with Tata Consultancy Services on 9 April, followed by Wipro on 16 April and HCLTech on 21 April. Infosys will announce its results on 23 April, while Mphasis is scheduled to report on 29 April.