Bangalore: India’s major software firms say a US economic slowdown may bring more customers seeking cost savings, but analysts warn that the once red-hot sector could face tough times in 2008.
Tata Consultancy Services Ltd (TCS), Infosys Technologies Ltd and Wipro Ltd, whose latest earnings were hit by a sharp gain in the rupee against the dollar and the US credit crunch, expect clients to send more work to low-cost India even as they pare overall technology budgets. Wipro, which reported third quarter earnings on Friday, said most clients had prepared their 2008 budgets this month and that some had cut information technology (IT) spending.
“But that does not automatically mean their outsourcing and off-shoring budgets are going to slow down,” said Girish Paranjpe, the executive who deals with Wipro’s financial services customers—its most lucrative clientele. “Sometimes it gives more impetus, rather than less, to do more offshore.”
Still, even if US clients farm out more IT work to India as they tighten spending, they would negotiate lower prices, which will dent the billing rates of software makers, analysts say.
“We are cautious about the outlook for the IT sector because of the situation in the US,” said Harit Shah, an analyst at Angel Broking in Mumbai. “The picture will get clearer by the end of the next quarter.” The US is the biggest market for Indian software and service exports, which jumped 33% to $31.4 billion (Rs1.23 trillion) in the year ended March, and are forecast by the industry group the National Association of Software and Services Companies (Nasscom) to hit $60 billion by 2010.
Earnings have taken a hitafter the rupee gained more than 12% against the dollar in 2007, with further gains forecast as the US economy wobbles under the threat of recession. “The situation in theUS is deteriorating by the day and we need to watch it closely,” said Tejas Doshi, an analyst at Mumbai-based Sushil Finance.