A Study of Foreign Exchange Exposure in the Indian IT Sector

Abstract

Sample of thirty Indian IT firms for the period 2009-12. The foreign exchange exposure of the sample firms was computed using the Bodnar-Marston (2002) formula. The hypotheses were tested using t-tests and dummy variable regression. The results of the study indicate significant positive foreign exchange exposure in the Indian IT sector, and decreasing foreign exchange exposure across large-cap, medium-cap, and small-cap IT firms, according to operational scale. The results also indicate a negative impact of foreign exchange exposure on profitability, with positive impact for large-cap IT firms. Thus, downward movements in the exchange rate would benefit small- and mid-cap IT firms but would adversely affect large-cap firms, and vice versa for upward movements.