Impact of Exchange Rate Risk on Performance and Growth of IT companies in India

Abstract

The Information Technology (IT) industry of India has proved its capabilities in delivering both on and offshore services to clients globally over the years. However, the technological advances and innovations taking place at the global level not only present a whole new range of growth prospects, but also challenges for this highly competitive industry. Moreover, the IT sector of India also witnessed the economic recession in 2008, which had an adverse impact on the prospects of this industry. In this scenario, it is imperative for Indian IT companies not only to maintain their focus on increasing their technical efficiencies, but also to deal with the increased competition emanating from the Asia Pacific region. The importance of Indian IT sector demands efficiency usage of resources to compete at global level and provide efficient solutions in the service business. The main objective of this study includes the estimation of relative efficiency of the top 18 selected Indian IT software service companies in order to determine benchmarks, output slacks and target settings for the duration 2010 to 2017 using Data Envelopment Analysis. This study also investigates the factors influencing the performance of IT companies in India and explores the relationship between sales with respect to employee s compensation and total assets of 37 selected IT companies in India. Furthermore, this study examines the long-term as well as short-term dynamic relationship between IT growth and economic growth of India using quarterly Gross Domestic Product (GDP), aggregate quarterly IT sector Net Sales and aggregate quarterly IT sector Net Profit from 2010Q1 to 2017Q4. Also, since IT companies in India get 90 percent of their revenue from foreign countries, it is imperative to examine the impact of exchange rate volatility on stock prices and profitability of IT firms of India for the duration 2010Q1 to 2017Q4.