IT and ITeS companies need not worry much about the sub-prime lending crisis as it will not have a major impact now. The banking financial services and insurance (BFSI) sector accounts for a major chunk of revenues (24% to 45%) of the IT/ITeS sector in India.
There is a clear threat that a slowdown in the US as a result of the hit to the BFSI sector and real estate, which have contributed around 20% to the US GDP growth in the past ten years, will reduce IT/ITeS spending and hurt earnings growth. In both the cases, analysts believe that it is early days still.
?History suggests that in a downturn, companies in US reduce their software investments significantly. However, this decrease usually comes with a lag of six to nine months. We believe the effect of a slower GDP growth in last three quarters will manifest only by early 2008 when next year IT budgets are finalised,? says a report published by CLSA Asia Research.
Most of the IT companies present across the board are dealing in mid- to low-end work where the cost of implementation is not too high. Hence, there is not much to worry about the impact of the sub-prime lending crisis, except for certain portfolios where the companies are servicing large guys who are affected by this crisis. ?If this happens, then the IT companies may try and reduce cost to their clients who are affected by the sub-prime crisis,? said a Mumbai-based investment banker.
Already struggling with a stronger rupee and rising wages, outsourcers generally believe the subprime woes will spread. But larger players such as Infosys
Technologies say this could open up new opportunities. ?We are not too concerned about the subprime mortgage (crisis) impacting our processes,? said Amitabh Chaudhry, chief executive of Infosys BPO.
Says Rohit Kapoor, president and COO of EXL Services, ?We have two clients in the mortgage segment, of which, one client deals in the sub-prime lending and the other does not. However, we will have to wait and watch the situation.?