Hong Kong/Singapore/Bangalore: India’s largest software-services companies, Tata Consultancy Services Ltd (TCS) and Infosys Technologies Ltd, expect US financial firms to delay orders as the worst housing slump since the Great Depression forces cutbacks.
Looking beyond: Infosys CEO S. Gopalakrishnan said the firm, which is seeking to increase sales in Europe, may look at ‘selective’ acquisitions. Hemant Mishra / Mint
“We keep hearing bad news and there may be still some more bad news,” TCS chief executive officer S. Ramadorai said on Wednesday. “Delays in projects are to be expected in the financial services sector and that’s what we’re witnessing.”
TCS and Infosys in July reported first quarter profit growth slowed as Wall Street clients reduced orders and delayed new contracts. Since then, the deepening crisis has forced the US treasury to take over mortgage lenders Fannie Mae and Freddie Mac and losses and writedowns at financial firms have crossed $500 billion.
“There’re some delays in new orders as customers are also concerned about the environment,” Infosys chief executive officer S. Gopalakrishnan said in a separate interview in Singapore.
The US economy lost jobs for the eighth straight month in August, according to its labour department. The decline increases the likelihood of a drop-off in consumer spending and a deeper economic slowdown by the end of the year.
The slowdown has prompted large companies led by banks to pare their technology budgets, according to Cambridge, Massachusetts-based Forrester Research Inc. The survey of financial companies showed 49% have slashed budgets.
“We have to be very, very cautious with the happenings in the financial services firms,” Ramadorai said. “The software industry relies 40-44% on the financial services sector and the US becomes a major market.”
To weather the slowdown, both TCS and Infosys are seeking to increase sales in Europe, which currently contributes about a third of their revenue. Infosys last month offered to buy UK-based Axon Group Plc. for $718 million, its second acquisition in 13 months.
Infosys may face a counter bid for Axon from Japan’s Fujitsu Ltd and India’s HCL Technologies Ltd, which plans to offer 15% more than Infosys’ bid, The Economic Times newspaper reported, citing unidentified people involved in the negotiations.
Gopalakrishnan said he hadn’t heard about a competing offer. The Bangalore-based software exporter may look for further “selective” acquisitions, he said.
“We’re looking at consulting and geographical expansion in Europe and the emerging markets such as India and the Middle East,” Gopalakrishnan said. Infosys expects to hire 25,000 people this financial year, compared with more than 33,000 for the year ended March.
The plans aim at narrowing TCS’ lead and boost revenue in Europe as customers in the US delay orders.
Infosys plans to hire 25,000 workers this year and add capacity in China, eastern Europe and Latin America, Gopalakrishnan said at a conference in Singapore, without elaborating. Infosys may recruit about 1,000 workers in China in the next two-three years, he said.
TCS is expanding in Latin America where the Indian service provider already has a presence in Chile, Ramadorai said. While the software provider is growing in other regions, the US will remain the largest market, contributing about half the company’s revenue, Ramadorai said.
Infosys rose 0.68% to Rs1,759.15 in Mumbai. TCS fell 1.74% to Rs851.15.