Export Revenue Exposure and Currency Sensitivity: Why Indian Companies Get Hit Hard | Quick

by Karnivesh | 21 January 2026

A treasury manager at Infosys watches the dollar-rupee exchange rate drop from 78 to 90 in a single year. On paper, something magical happens: a $1 million contract suddenly translates into ₹90 lakhs instead of ₹78 lakhs. Total revenue in rupee terms climbs. The stock price rises. Investors celebrate. But then reality sets in the company's hedging positions create mark-to-market losses. The gain on revenue becomes a loss on the balance sheet. Earnings miss forecasts. The stock crashes.

This is the paradox of currency exposure for Indian exporters. A currency movement that should help an export-driven business can simultaneously hurt it. Understanding this requires looking beyond headline numbers to grasp the deeper mechanics of export revenue exposure and currency sensitivity.

What is Export Revenue Exposure?

Export revenue exposure occurs when a company's earnings depend heavily on foreign currency inflows, primarily US dollars. India's top IT services firms TCS, Infosys, and Wipro exemplify this exposure. TCS earns over 90% of revenue from exports, with Infosys at 98% and Wipro at 88%. These companies quote their services in dollars, but their costs (salaries, infrastructure, operations) are paid in rupees. This mismatch creates both opportunity and risk.

When the rupee weakens against the dollar (depreciates), foreign currency revenues convert into higher rupee amounts. A ₹1 million contract becomes worth more rupees, boosting reported revenue and operating profit margins. Conversely, when the rupee strengthens (appreciates), the same dollar revenue translates into fewer rupees, compressing earnings.

This sensitivity is quantifiable. For IT services companies, every 1% movement in the rupee-dollar exchange rate impacts operating margins by approximately 40 basis points. For a company operating at 25% margins, a 5% rupee appreciation could compress margins from 25% to 23% a material decline that directly affects profitability.

Currency Exposure Impact: Rupee Depreciation vs. Appreciation Across Sectors

The Sector Winners and Losers

The chart above reveals which sectors gain and which lose as the rupee fluctuates. When rupees weaken (depreciate), IT services, pharmaceuticals, and chemical exporters thrive. Their dollar revenues increase in rupee terms, boosting top-line growth and bottom-line profits. But simultaneously, import-dependent sectors suffer. Aviation companies paying for jet fuel in dollars, manufacturers importing raw materials, and textiles needing imported intermediates all see margin compression.

Consider the pharmaceutical sector. Indian pharma is a global powerhouse, exporting APIs (Active Pharmaceutical Ingredients) and finished drugs worth $25+ billion annually. A weak rupee makes these exports cheaper globally, driving volume growth and margins. But the same weak rupee increases costs for imported raw materials, partially offsetting benefits.

Even more complex: when rupees depreciate sharply, the benefits disappear if global demand weakens or protectionism rises. During 2024-2025, despite rupee weakness, Indian textile and leather exporters struggled because global buyer protectionism and rising costs of imported inputs (from China, Vietnam) outweighed currency advantages.

The Hedging Paradox

Here's the irony: the more carefully Indian exporters protect themselves, the more complicated the picture becomes. TCS, Infosys, and Wipro all actively hedge their foreign exchange exposure. TCS hedges approximately 52% of its foreign currency exposure, Infosys around 30%, and Wipro over 88%. They lock in exchange rates using forwards, options, and other derivatives.

But hedging creates a dual impact. When rupee depreciates suddenly:

• Operating profit improves (dollar revenue converts at favorable rates)

• Hedging losses appear (locked-in rates mean the company doesn't capture the full benefit)

Mark-to-market losses on hedging contracts can exceed operating gains temporarily, creating accounting losses despite operational improvement. This confused investors in December 2025 when the rupee hit fresh lows: IT stocks initially rallied on currency tailwinds, then fell as mark-to-market losses on hedging contracts appeared in financial statements.

Export Concentration Risk Amplifies Currency Risk

Many Indian exporters compound currency exposure with customer concentration. A mid-sized engineering goods exporter generating 70% of revenue from US clients has double exposure: if the rupee strengthens and US demand weakens simultaneously, the company faces a pincer movement. Currency headwinds combine with revenue headwinds, creating a severe crisis.

Manufacturing MSMEs exporting to the US or Europe face this acutely. A sudden rupee appreciation of 3-4% combined with a client reducing orders can bankrupt the business. The company has committed to production capacity expecting dollar inflows that now deliver fewer rupees, while simultaneously facing lower order volumes.

Why This Matters in India's Context

India runs a persistent current account deficit. Oil imports alone consume $100+ billion annually. This creates structural dollar demand that weakens the rupee. Exporters especially IT services and pharmaceuticals benefit from this depreciation. But it creates a feedback loop: as the rupee weakens from external imbalances, importers (aviation, oil marketing companies, capital goods manufacturers) face rising costs that inflate consumer prices, disrupting growth and investment.

During 2022-2025, as the rupee depreciated from 75 to 90 per dollar, IT companies reported strong growth. But pharma companies importing APIs faced margin compression despite being exporters themselves. Textiles and gems faced the worst scenario: depreciation helped initially, but global protectionism (US tariffs, China tensions) eliminated that benefit.

Red Flags: When Export Exposure Becomes Dangerous

Several warning signs suggest excessive export revenue exposure:

Single-currency concentration: If 70%+ of revenue comes from a single currency (say, USD), a major currency move creates severe profit swings. Better exporters diversify across EUR, GBP, JPY, AUD to spread currency risk.

High unhedged exposure: A company with 60% of revenue in dollars but only 30% hedged faces significant downside if rupee strengthens. An unhedged position assumes the currency moves favorably a dangerous bet.

Import-heavy business models: If an exporter has high dollar revenue but also high dollar costs (imported raw materials, foreign software licenses), currency gains are self-canceling. The apparent benefit vanishes when analyzed properly.

Rapid margin pressure from currency moves: If operating margins decline 200-300 basis points with a modest rupee appreciation, the business is too exposed. Better exporters have built operational efficiency that can offset currency headwinds.

Inability to pass currency costs through to clients: If a company can't adjust client pricing when rupee moves, it absorbs all currency losses. This is typical for IT services with fixed-price contracts, making them acutely currency-sensitive.

The Investor's Playbook

When evaluating Indian export-focused companies, separate currency-driven growth from organic growth. A company reporting 12% revenue growth might have generated only 5% constant-currency growth, with 7% coming from rupee depreciation.

Compare operating margins in constant currency (adjusting for exchange rate movements) to reported margins. The gap reveals true operational performance hidden by currency tailwinds or headwinds.

Watch hedging ratios. A company with 90%+ of exposure hedged is protected but forgoes currency upside. One with <20% hedging faces significant volatility. The optimal hedge ratio depends on business stability and cash flow predictability.

Monitor the company's currency exposure composition. Is it primarily USD, or diversified across multiple currencies? Diversification reduces single-currency risk but complicates hedging.

The Bottom Line

Export revenue exposure and currency sensitivity are invisible earnings drivers that most investors overlook. A company reporting strong growth may simply be benefiting from rupee depreciation rather than improving business fundamentals. Conversely, a company in decline may be facing headwinds from currency appreciation that operational improvements could offset.

For Indian exporters especially those in IT, pharma, and chemicals currency movements are as important as business execution. Companies that manage this exposure actively, diversify currency streams, and hedge intelligently create stable earnings. Those that don't become hostages to exchange rate movements, delivering volatile returns and disappointing investors.

Understanding your Indian company's export revenue exposure and currency sensitivity isn't optional for sophisticated investors; it's essential to separating real growth from currency-driven illusion.