Indian IT firms brace for US slowdown

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: As fiscal 2007-08 comes to a close, there is a feeling of uncertainty in the IT sector. The reason: a slowdown in the world’s largest economy, the US—the Indian IT industry’s biggest revenue generator. Tier I offshore firms—Tata Consultancy Services (TCS), Infosys Technologies, Wipro Ltd and Satyam Computers—are all keeping a close watch on where the US economy is heading, with a strange mix of cautious optimism and bullishness. Recently, the country’s largest software exporter TCS came out in the open and said two of its top 10 clients might show subdued demand in the fourth quarter of the current financial year. Similarly, IT bellwether Infosys has projected a muted quarter. On the other hand, Wipro and Satyam have been bullish and have expressed comfort with the near-term demand.

“The near-term impact of the slowdown in the US market is going to be for both big and small players. There is still uncertainty over clients’ budgets and visibility is expected only by the month-end or early April. It is not just the BFSI that is taking a hit, it is even affecting other verticals like retail and manufacturing,” says an official of a Tier-I company. “There have been price increases and also renegotiations have been successful. But volumes may be muted. Also large projects may get delayed,” says a top official of an IT company.

At the end of the third quarter, the top IT companies had all admitted that IT budget decisions by the US corporate houses were getting delayed, especially in the banking, financial services and insurance (BFSI) segment. They had expected a clearer picture by January-end or early February. The worry lines have begun to emerge as the decision-making process has gotten prolonged and their potential clients continue to be on a wait-and-watch mode.

With the BFSI segment contributing nearly 40% revenue to the top IT firms, any adverse impact on discretionary spending by the large financial institutions and global banks will be a drag on their fortunes. But what is reassuring is that, in spite of the near-term demand being less visible than earlier, and an increased competition to Indian players from global peers, offshoring as a trend continues to be attractive.