Hyderabad: The collapse of Lehman Brothers, the merger of Merrill Lynch with Bank of America Corp. and the travails of insurance giant American International Group Inc. could hurt Indian information technology (IT) firms that derive a significant portion of revenue from US finance firms.
Stocks of Indian IT firms fell by between 0.5 percentage point and 5 percentage points on Monday more than the fall in the benchmark index, the Bombay Stock Exchange’s Sensex.
Turbulence Ahead (Graphic)
“Banking and financial services is a very big vertical for Indian tech companies, and there are concerns that the present situation will result in sticky receivables, of money not coming in on time,” said Sandeep Shenoy, strategist at PINC Research, a Mumbai-based equities research firm.
According to industry lobby group Nasscom, the banking, financial services, insurance, and telecom sectors account for at least 60% of Indian IT firms’ revenue.
In the case of the country’s largest IT services firm Tata Consultancy Services Ltd, (TCS), these sectors account for 44% of revenue. A TCS spokesperson said the company “does not wish to comment on any specific individual client”.
But Satyam Computer Services Ltd chief financial officer Srinivas Vadlamani said in an email: “We are very concerned about the recent developments in the BFSI (banking, financial services and insurance) segment in the US.” Vadlamani said the bankruptcy of Lehman, a client, would not affect Satyam because “they contribute a very small proportion of our revenue”.
Mint couldn’t immediately ascertain whether Merrill Lynch’s acquisition by Bank of America would entail business moving from IT firms serving the former to those serving the latter. Apart from Satyam and HCL Technologies Ltd, which said that neither Lehman nor Merrill was a customer, none of the large Indian IT firms was willing to speak about customers. Wipro Ltd and Infosys Technologies Ltd said they would not comment because they are in the so-called “quiet period” leading up to the announcement of their quarterly results next month.
Diptarup Chakraborti, principal analyst at research firm Gartner, said: “I don’t think Indian IT firms will be that badly affected, since these big, global financial organizations depend more on IT biggies like IBM.”
On Monday, shares of TCS fell by 5.74% to close at Rs761.80 each; those of Infosys fell by 4.24% to close at Rs1,574.40 each; those of Wipro fell by 4.16% to close at Rs402.30 each; and those of Satyam by 9.45% to close at Rs368.15 each. The Sensex fell by 3.35 % to close at 13,531.27.
Krish Raghav, Bloomberg and Reuters contributed to this story.