Euro debt affecting Indian IT firms as outsourcing contracts lessen

Software companies in India are preparing to face a sluggish pace of outsourcing deals during 2012 when they begin quarterly earnings in the current week owing to the protracted European debt crisis, their largest market subsequent to the United States.

According to a recent online report, the country’s second largest IT firm, in terms of software exports and the main business rival of the country’s top IT firm Tata Consultancy Services (TCS) and Infosys Ltd generate approximately three-fourth of their proceeds from the United States as well as Europe.

The report quotes a higher-ranking fund manager at the HSBC Asset Management Ltd, Dhiraj Sachdev as saying that currently, the tech firms ought to be wary of the optional expends during the 2012 calendar year as it will be the crucial challenge. He added that there is some early sign that the sales cycles will possibly extend.

The report quotes a January 5 report by the globally research firm Gartner Inc saying that during 2012, worldwide expenses on IT would increase at one of the sluggish tempo during the three years because Europeans, concerned about the area's sovereign debt crisis are holding back on investments. Gartner has actually forecast that in 2012, the international spending on IT is likely to increase by 3.7 per cent. This estimate is lower by 4.6 per cent compared to its previous forecast of 4.6 per cent. In effect, the estimate of Western Europe has been hacked to a decline of 0.7 per cent in expenditure from the earlier estimated growth of 3.4 per cent.

According to the report, it is anticipated that on Thursday Infosys, India’s second largest IT firm, will report a 30 per cent rise in profit for the quarter ended on December 31, 2011. While the increase in profit has been possible owing to an eight per cent depreciation of the rupee, the market will be concentrating on any adjustment in forecast for the 2011-2012 fiscal ending on March 31 next, hiring, and statements on demand impetus and acquisition plans.

Dhiraj Sachdev of HSBC says that the European financial services sectors’ budget for IT spending will turn out to be a crucial factor for the Indian software firms, which contest with IBM Corp and Accenture Plc for deals for writing software applications as well as maintaining computer systems

While Accenture has posted robust quarterly results in December 2011, the Dublin-based tech consultancy and outsourcing major has provided a guarded outlook for the second quarter in the midst of deteriorating global economy. In fact, throughout 2011, the rupee has been the most awful performer in entire Asia and has lost about 16 per cent vis-à-vis the dollar.

Compared to the company’s July-September results, the depreciating rupee is likely to facilitate Infosys gaining approximately 295 points in margins for the quarter ended on December 2011. According to a report by independent brokerage and investment group CLSA analysts, Wipro is likely to gain about 55 basic points for the same reason.

Talking to Reuters recently, S D Shibulal, Infosys CEO, said that even one per cent downgrading of rupee results in a net inflow of about 30 basis points in profit margins. He added that economic insecurities are inhibiting decisions by foreign firms on tech spending. According to Shibulal, they are obviously considering it. In effect the sluggishness has increased during the past one month or so, he concluded.