The earthquake in Japan is expected to have a negligible impact on the Indian IT (information technology) industry. While firms such as Tata Consultancy Services Ltd and Infosys Technologies Ltd are saying they are willing to relocate employees based in Japan, there may be some impact on the sentiment.
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But the exposure of most firms to Japan is only to the extent to 1-2% of revenue. And like Infosys has said, the arrangement to bring staffers to safety would only be a temporary step and customers in Japan will continue to be serviced from offshore locations.
The only company to have a meaningful exposure to Japan is Nucleus Software Exports Ltd, which derives around 30% of its revenue from the country, according to analysts. Revenue from the Far East region accounted for about 39% of Nucleus’ revenue of Rs205 crore in the nine months ended December, according to the company’s website.
But even with Nucleus, most of this revenue is from the sale of software solutions and products to customers that are primarily based in Tokyo, say analysts. It’s not as if a large number of employees is based in Japan and business will be disrupted to a large extent. Even so, the fact that the firm derives a large portion of its income from the country has affected sentiment, and it’s not surprising that Nucleus’ shares have fallen by more than 10% since last Friday.
Since the Indian IT industry’s main market in the US is doing well, any impact will be easily offset. Indian IT companies have grown at a fast pace in 2010-11, partly benefiting from the pent-up demand in the system after the financial crisis. Now, with the US economy doing relatively better, growth for IT outsourcing is expected to remain healthy.
This optimism is reflected in the share prices of IT firms. While the National Stock Exchange’s Nifty index has dropped by nearly 14% from its highs in early November, the exchange’s CNX IT Index has dropped by only 2.2%.
Graphic by Sandeep Bhatnagar/Mint
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