Indian Rupee exchange rate versus NSE CNX IT sector index
A rising Indian rupee versus the US dollar invariably brings up two topics: negative impact on Indian exporters, and negative impact on the Indian IT majors (Infosys, TCS and such). Let’s take a look at the latter: do changes in the exchange rate correlate with the NSE’s CNX IT sector index?
The chart below plots these two data series for the May 2004-2007 period:
As you can see, there is not much of a direct relationship between the USD:INR and the Indian IT index over the past 3 years. The economic & stock market booms have translated to a sustained bull run in the IT index - despite strengthening of the rupee at various times. Some simplistic analysis shows that the correlation between these two data series is -0.2; this is in fact the opposite of what you would expect!
The next step would be do analyze the correlation between the rupee and the profit margins of these companies. That would need a much more thorough statistical analysis, since we need to figure out if (and by how much) changes in the rupee lead changes in IT profit margins. Unfortunately, I don’t have the necessary historical data on company/sector margins, yet.
PS: Data Sources - NSE for historical index values, Kshitij for historical $:Rupee rates. The RBI also provides historical data for their ‘reference rate’ here.
