Global-O&O

SOURCE: The Times,UK
DATE: January 22nd, 2008

ARTICLE

India’s outsourcing sector is suffering on two fronts: the threat of a recession in the United States has reduced demand for corporate IT upgrades; and the steepest rise in the value of the rupee in three decades has weakened the country’s cost advantage.
The decison by Lehman Brothers, the Wall Street bank, last week to close an India-based mortgage capital division sent shivers through the sector, with executives fearing that the sub-prime mortgage woes had reached Indian shores.
It came as four of the largest Indian IT companies – Tata Consulting Services, Infosys Technologies, Wipro, and HCL Technologies – reported average sales growth for the third quarter of about 21 per cent compared with more than 50 per cent a year earlier. For the three months to December, they posted average net profits growth of about 18 per cent, the lowest since 2001.

The rupee gained 12 per cent against the dollar last year and Indian IT companies also had to contend with double-digit wage inflation.
Ramalinga Raju, chairman of the United States-listed Satyam, India’s fourth-largest software exporter, has struggled to appease investors despite a 29 per cent increase in profits. Yesterday Mr Raju became the latest business leader to refute the theory that the subcontinent’s economy had “decoupled” from that of America, an idea put forward by figures ranging from a World Bank economist to bullish Indian retail investors.
“We are monitoring several market factors, including the economic environment in the US, which could have a bearing on our customers’ spending,” Mr Raju said.
Harshad Deshpande, of Religare Securities, said: “The numbers are in line with expectations, but the overall guidance is muted. Concerns remain about the US recession.”
Indian IT equities have underperformed their international peers this year after years of explosive growth, according to S&P, the rating agency. It said: “Investors have become cautious … due to the continued appreciation of the rupee. We favour companies able to deliver services from locations around the world.”
Sentiment was hit further after Goldman Sachs and Lehman Brothers cut price targets for Wipro. India’s third-largest software exporter gave warning last week that American banks were expected to cut spending on new IT infrastructure.
Infosys, the second-largest Indian computer services group, had said earlier that it was too early to assess the impact of America’s slowdown. TCS, the market leader, said that it was “cautiously confident” because it believed that Western clients would outsource more business overseas to cut costs.
The Bombay bourse has recorded heavy falls in its flagship technology sector, with the benchmark Sensex index suffering a record intra-day loss yesterday. At one point the index of 30 leading shares fell 11 per cent.
The Sensex ended down 1,408.35 points, or 6.4 per cent, at 17,605.35. The index has lost nearly 17 per cent of its value since the start of last week.
Sajjan Desai, of Dawnay Day, the broker, said: “The downfall in our markets today had a lot to do with global cues. The chances that the US economy may go through a recession are high. This has played with investors’ sentiment globally.”
The traffic in jobs
— In 2006 the BBC said that it would outsource payroll and expenses services to Xansa in Madras
— In December 2006 Cisco Systems announced a $1.1 billion investment in Bangalore to support its global operations
— Reuters employs 100 local journalists in Bangalore to report on the New York Stock Exchange

No relate

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• May 12, 2008 -- Viteos targets European expansion
• March 20, 2008 -- Financial Services captives stop/slow down hiring in India
• November 2, 2009 -- Outsourcing industry entry level salaries lower in India by 20%
• September 23, 2008 -- Amount Lehman owes Satyam, TCS, Wipro
• November 10, 2009 -- Yahoo to grow their operations and business in India
• May 9, 2008 -- Virgin Atlantic extends TCS IT outsourcing deal
• February 28, 2008 -- Wipro reduces no. of hiring partners

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