IT caught in slowdown web

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Mumbai: The economic slowdown has brought about an array of worries for Indian IT players. As the budgeting season arrives, companies assume wait and watch situation to see what their international clients will decide. Moreover, only players with strong cash flows will be able to sustain the onslaught of the slowdown. Others will have to cut costs drastically or borrow.

Industry analysts feel this year, due to the economic downturn, the budgeting for IT spend might get delayed by a couple of months. There will definitely be price revisions. Already CLSA has mentions that it expects a 4% downward revision in Infosys’s billing rates.

As far as spending for new developments and new projects are concerned, the companies might come out with short-term budgeting and review and revise it over time depending on the situation.

As much as 70% of budgeting done by the companies is on the non-discretionary front, and the rest 30% is done for new projects and developments. “The budgeting for non-discretionary stuff is likely not to get affected. However, the IT sector will definitely get affected as far as the new project developments are concerned,” commented Ganesh Natarajan, chairman, Nasscom & global CEO, Zensar Technologies.

Discretionary budgets however, will be cut drastically. Abhiram Eleswarapu of BNP Paribas Securities India mentions in his report, “We expect Indian players will face heavy discretionary spending cuts in FY10 as clients tighten their purse strings given our projections for an impending recession. Indian companies need to quickly broaden their client focus to sustain growth, which we see as unlikely.”

Hence, companies could well take the short term budget route. “During the current market situation, it is highly probable that the clients might come out with short term budgets, and review and revise their spending depending on the situation,” Natarajan added.

The Indian IT companies have already seen new projects getting delayed by the clients during last 4-5 months. However, as most industry experts feel that the economic downturn will go on for the next 6-9 months, the short term budgeting, if happens, will definitely put the companies in a difficult situation. Thus, it is predicted that this year the IT industry will grow at the of 21%-24%, which is 5%-6% slower as compared to last year’s growth rate, which was around 29%.