Beware of cross-currency movements

Over the last 3-4 years, the Indian IT services companies have reduced the share of their revenue coming from the US from 95%+ to around 65%. A big portion of this revenue now comes from European clients. That was lauded as a great risk management step, and the harbinger of further growth. But what seems to have been missed is the fact that in a gobally inter-connected economy, exchange rates move in ways that are hard to model or predict. Most companies focused on the US$-INR exchange rate or the GBP/Euro-INR rate. Not surprisingly, many of these companies now face the threat of seeing revenues erode because the US$ has gained hugely vis-a-vis the Euro and GBP over the past few weeks. The next month will tell us how badly revenues and margins of these individual companies have been hit. Another painful lesson in globalization.