Credit crisis to hamper IT growth in India

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India's top information technology outsourcers should report quarterly profit rose by up to a third, helped by a weaker rupee, but the export-driven industry's outlook will be dented by the global financial crisis.

Markets will focus on companies' comments on the pricing environment and hiring plans -- key demand indicators – amid concerns the spreading crisis could cripple outsourcing demand. Large banks and financial firms from the United States to Europe and Asia are big clients of Indian IT companies such as Tata Consultancy, Infosys Technologies, Wipro and Satyam Computer.

"When firms struggle to survive, outsourcing is less likely to be an immediate theme," Edelweiss Securities said in a report, retaining its "market underperformer" rating for the sector.

Some outsourcers may cut their dollar revenue forecasts due to a downturn in the US market, which contributes more than half their revenue, analysts said. Indian IT firms have also been expanding in Europe and elsewhere to cut their US dependence.

But the risk of global recession is a worry for the sector which was used to a scorching pace of growth.

"The business climate is very challenging for the software companies," said Jayesh Shroff, a fund manager with SBI Mutual Fund. "The turmoil that we are seeing in the market place is definitely going to curb technology spending."

CUT IN REVENUE FORECAST

Broker Religare Hichens Harrison expects Infosys to cut its annual revenue growth forecast in dollars to 17.5-19.5 per cent due to foreign exchange moves and sluggish demand environment.

Nasdaq-listed Infosys, whose takeover bid for British consultancy Axon Group has been upstaged by a counter offer from a smaller Indian rival, has forecast 2008/09 dollar revenues would rise 19-21 per cent.

India's IT export growth could be slower than its July forecast of a 21-24 per cent rise to about $50 billion in the year to March, lobby group National Association of Software and Service Companies said last month.

Top officials from Indian IT firms have said customers were delaying decisions on new projects in the tough global environment. German software maker SAP warned this week its sales had dropped abruptly in the last two weeks of September as companies curtailed business software spending.

An 8.4 per cent drop in the rupee against the dollar in July-September should support profit margins at Infosys and TCS by 172 basis points and 78 basis points, respectively, Angel Broking's Harit Shah wrote in a report.