Indian IT industry earns new forex feather in its cap

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Foreign exchange earnings are an important metric to assess the broader ‘utility’ of an industry in a trade-centric world for a country and the information technology services has emerged as the top forex earner for India in FY23, the Business Standard has reported. It is the first time that the forex income of listed IT entities has exceeded that of the listed oil and gas companies and listed non-oil and gas firms in other sectors such as pharmaceuticals, automotive and auto ancillaries, industrial metals, capital goods, chemicals, textiles, FMCG and consumer durables.

The companies that have heavily contributed to this feather in the cap of the IT industry include Tata Consultancy Services, Infosys, Wipro, and HCLTech.

The cumulative foreign exchange earnings of the listed IT firms rose by 20.7% (on a year-on-year basis) to Rs 5.14 lakh crore in the last financial year. In contrast, the forex income of manufacturing companies (ex-IT and oil & gas) climbed down 5% to stand at Rs 5.08 lakh crore.

However, despite the slowdown in some of the major markets of IT services firms such as EU and the US, this sector managed to keep up its growth in exports, reiterating the competitiveness of the country’s IT industry.

G Chokkalingam, founder and CEO of Equinomics Research, said that the trend of IT maintaining its robust exports could continue in the current financial year as well, while merchandise exports would continue to perform listlessly and possibly shrink. He observed that the country’s merchandise exports grew only in low single digits in FY23.

Over the past five years, IT companies have set a fast growth in forex earnings registering a compound annual growth rate (CAGR) of 14.6%. This rate of growth was particularly emphatic in the light of CAGR of 4.8% recorded by the the forex revenue of listed companies across sectors.

The IT sector outperformed crude oil refiner majors such as Reliance Industries and Mangalore Refinery & Petrochemicals (MRPL) in export revenue in the last financial year. Oil and gas companies recorded a 34.4% (year-on-year) rise in their cumulative forex income to touch a figure of Rs 4.6 lakh crore. But their growth rate — CAGR of 4.2% since FY13 – was a fraction of the CAGR of 13.7% for IT companies.

However, as a standalone company, Reliance Industries earned the highest amount of forex in FY23 — Rs 3.37 lakh crore. Next came Tata Consultancy Services with a far smaller Rs 1.83 lakh crore. Infosys ranked third on this list with Rs 1.21 lakh crore.

The other top forex earners last year was Wipro (Rs 63,700 crore), MRPL (Rs 45,500 crore), and HCL Tech (Rs 40,900 crore).

However, IT companies stood out on another important parameter. Crude oil refiners are net importers. The forex they spend to buy crude is higher than their revenue. But the forex income of IT companies is more than twice their foreign exchange expenses.

Pharmaceuticals, comprising firms like Sun Pharmaceuticals, Cipla, and Dr Reddy’s Lab, is the second-largest exporting sector from India. Its cumulative forex revenue is about Rs 82,500 crore. The next big earner is the automotive sector with at Rs 71,000 crore in the last financial year.

The data was crunched out of annual finances of a sample of 795 companies from the BSE500, BSE MidCap and BSE SmallCap indices. It excluded the entities in the banking, finance and insurance sectors.