Sharp rupee fall to boost IT firms’ margins in Q3FY26

Bengaluru: Sharp rupee depreciation against dollar is likely to provide margin benefit to Indian IT services providers though the impact will be short-term.

According to industry experts, the third quarter earnings will see benefit of margin improvement coming from rupee depreciation. But IT companies are expected to pass on the benefits of such fall to clients in case the current level is maintained, they added.

“Rupee depreciation does provide near-term margin air cover for Indian IT services firms—but it should be seen as a shock absorber, not a structural fix. At HFS Research, we view currency tailwinds as a temporary optical benefit,” Ashish Chaturvedi, Executive Research Leader at HFS Research toldthe BizzBuzz.

“Much of the traditional FX upside (forex gain) is already diluted by natural hedges, onshore delivery expansion, subcontracting costs, and higher investments in digital and AI talent,” he added.

Rupee has been the worst performing currency against US dollar in 2025. Till date, the Indian rupee has depreciated by around 5 per cent against dollar this year. During October-December period (so far), rupee has fallen around 1.5 per cent against the US dollar. Usually, one per cent fall in Indian rupee translates into 25-30 basis points margin accretion for Indian IT services companies.

While rupee fall against US dollar will provide advantage to Indian IT firms, which have a significant share of their revenue coming in dollar terms, the margin upside may not be proportional to the depreciation in rupee.

According to experts, operating expenses of domestic IT companies are on a rise since the beginning of the year. Due to restrictive policies on H1B visa norms, IT companies are forced to deploy subcontractors for project execution in the US, leading to higher subcon expenses. Similarly, all IT companies are aggressively investing on creating new platforms and solutions in AI space.

Due to such high expenses, all the benefits coming form rupee depreciation will be nullified to a large extent during the third quarter of FY26. Third quarter results of current financial year will be announced by domestic IT firms from next month onwards.

“Clients today are less interested in headline rate cards and more focused on ‘net value delivered per dollar spent.’ As a result, FX benefits are likely to be passed on indirectly through aggressive productivity commitments, tighter pricing in renewals, bundling AI proposition or efficiency gains into base contracts,” Chaturvedi of HFS Research said.