Bangalore: Indian software companies such as Tata Consultancy Services Ltd (TCS) and Wipro Ltd are beginning to see the first, tentative signs of a rebound in the technology spending of clients forced by the US credit crisis to freeze budgets and hold back outsourcing contracts.
But uncertainty still persists in the banking and financial services sector, which took the worst hit from the crisis in the world’s biggest economy and which accounts for more than a third of Indian software exports.
“Sales cycles are slowly coming back to normal,” said Girish Paranjpe, joint head of the technology business at Wipro, India’s third largest software exporter, in a recent interview. “But I would wait till the summer is over to say things are normal,”
Wipro campus, head office on Sarjapur Road, Bangalore (Photo by: Hemant Mishra / Mint)
Wipro’s pipeline of orders is beginning to fill up and the clampdown on technology budgets that followed the crisis is being loosened, Paranjpe said. He spoke before the start of the so-called silent period that listed companies are required by stock -market regulators to observe ahead of earnings announcements.
The impact of any bounceback in technology spending on the earnings of Indian companies would be felt only from the quarter to December.
For the quarter ending June, Infosys Technologies Ltd, the second-largest software exporter, has forecast little change in earnings because of slower customer demand for services such as applications development, maintenance and consulting. Infosys, which will announce its June quarter results on 11 July, is also maintaining pre-earnings silence.
Global customers have stopped worrying about the present and are beginning to look to the future.
While companies such as TCS and Wipro are seeing a positive change in customer behaviour, industry analysts said demand from the banking, financial and insurance sectors may still take two to three quarters to revive.
“Overall there’s clarity,” said N.Chandrasekaran, chief operating officer at TCS, the country’s largest software exporter, adding that both the pipeline of orders and growth are robust. However, the uncertainty in the financial services industry would continue for the next few quarters, he said, calling the situation client-specific.
“There are clients who are even now bullish and willing to take advantage of the situation,” he said. “Also there are clients who are focused on offshoring to take their cost out, while some are delaying. Overall it’s a mixed bag,” he said.
In April, Indian vendors such as Infosys and Wipro said growth would be back-ended in the current fiscal year, with the impetus for expansion coming mainly in the December and March quarters.
The National Association of Software and Service Companies, or Nasscom, the industry lobby group, has projected that export growth would decline by 4 percentage points to 25% in the current fiscal year, citing the global economic slowdown.
Despite the lingering uncertainty, the outsourcing deal flow continues to be steady and is increasing. While there is a pause in spending by banking and financial services customers, other sectors such as manufacturing, retail and healthcare have been strong.
“The overall market is growing despite a slowdown in the economy,” said Paul Schmidt, partner and practice leader at TPI Inc, a global advisory firm.
About 28% of the 2,049 respondents in a survey by ChangeWave, a US-based research firm that tracks technology spending, said their IT budgets for the second half of 2008 will be less than in the first half. Only 18% said their budgets will be more and 44% said they will remain unchanged. US customers are looking to leverage their IT and business processing systems to boost productivity and efficiency, said Suresh Vasvani, joint CEO of Wipro.