Large IT companies in India are likely to see a marginal 1-2 per cent earnings impact from the economic crisis in Greece due to their exposure to Europe, while their direct revenue exposure to Greece is “practically zero”, says a research report.
According to the global financial services firm, Bank of America Merrill Lynch (BofA-ML), the indirect impact could come through the Indian IT sector’s exposure to Europe and because of the movement in the euro-rupee exchange rates.
“While the direct revenue exposure of India IT to Greece is practically zero, there are linkages in the form of movement of euro versus Indian rupee and the spillover impact to growth outlook of other European countries to which India IT has business exposure,” it said in a research note.
“In our view, a mild impact to Eurozone GDP and say, a 5 per cent depreciation of euro vs rupee results in only a small potential earnings impact for large-cap India IT (1-2 per cent),” Bank of America Merrill Lynch research Analyst Kunal Tayal said in the note.
The economic crisis in Greece has hit the euro and the European stock markets. Greece’s financial crisis has intensified with Prime Minister Alexis Tsipras announcing capital controls and shutdown of banks, while the country has now defaulted on debt repayments to IMF.
According to the BofA-ML report, large Indian IT companies have predominant revenue exposure to the Nordics (Denmark, Finland Norway, and Sweden), Switzerland and Benelux (Belgium and the Netherlands) within the continental Europe.
Germany and France are still relatively small markets (1-2 per cent of revenue), but are on a fast growth curve (especially Germany).
“A shock to GDP outlook of the above sub-markets is what could potentially impact business, given such a scenario resulting in elongated IT sales cycles,” BofA-ML said.