A slowdown in the US mortgages and housing sector has started hurting the growth of Indian IT companies and business process outsourcing firms (BPOs) such as Bangalore-based iGate Global Solutions Ltd that serve customers in the business.
iGate, among the first technology firms to declare its results for 2006-07, said its revenue grew to Rs806 crore from Rs635 crore a year ago, and its profits rose to Rs50 crore from Rs5.5 crore last year.
But iGate’s chief executive Phaneesh Murthy admitted that the company’s mortgages business, which accounts for 10% of its total revenue, “saw sluggish growth in the last quarter (January to March 2007), as new business in loan fulfilment and account management has come to a standstill”.
Analysts tracking the sector in India said companies, such as WNS (Holdings) Ltd, Genpact, and Equinox, part of Oracle-I-Flex Solutions Ltd, that offer some services to customers in the housing and mortgages business in the US, could also see their revenue from this segment slowing down.
“Other BPOs doing business in this area will also see a negative impact,” said Harmendra Gandhi, an analyst with Mumbai-based Brics Securities.
According to Nasscom Strategic Review 2007, an industry review conducted by the IT and BPO industry lobby Nasscom, the BPO arms of companies, such as Infosys Technologies Ltd and Wipro Ltd, offer services to companies in the mortgages business.
iGate forecast a flat growth for the current quarter that ends 30 June.
According to the Washington-based Mortgage Bankers Association, the market composite index, a measure of mortgage loan application volume, was 649.5 for the week ending 30 March, a decrease of 3.2% on a seasonally adjusted basis from 671 just a week earlier.
Lenders in the sub-prime mortgage business in the US such as Homebuilders and New Century Financial Corp. are grappling with challenges arising from serving borrowers with poor credit histories, as default rates go up.
According to data provided by Nasscom, the total value of mortgage-related BPO services delivered from India was $150 million (Rs645 crore) in 2006; this is expected to increase to $1.1 billion by 2010.
In a bid to address the US mortgages-processing market, some Indian BPOs have acquired front-ends in the country. Mumbai-based WNS acquired Arizona-based Trinity Partners in November 2005, and in July 2006, Genpact, India’s largest BPO, acquired California-based Moneyline Lending Services.
An analyst with a Mumbai-based brokerage said, on condition of anonymity, even the Infosys BPO, formerly Progeon, which counts a $1.6 billion US mortgage major among its customers, “may see its revenues hit if the slump worsens.” Infosys declares its results for 2006-07 on Friday.
According to a report on IT spending in the US published by IT research firm Forrester Research last year, the effects of a slowdown in the housing market on consumer spending could magnify over time.
“If any of these conditions arise, the US economy would slip into almost no growth or even recession. IT purchases would then be flat at best, and IT spending in 2007 would grow at 2%-4% rates,” wrote Andrew Bartels, a Forrester analyst, in the report.