IT sector sees limited impact of US meltdown
Bangalore, Sep 24 (IANS) The global financial meltdown following
the collapse of US investment banks will have limited impact
on the Indian IT sector in the short and medium terms, but
poses a challenge in the long term, says Som Mittal, president
of IT-BPO industry body Nasscom (National Association of Software
and Service Companies).
"It is a cause for concern, not panic. The Indian IT
sector is resilient to bear the impact of the turmoil. We
need to wait and watch to find out how deep is the crisis.
There will be some downside in the short and medium terms,
which will be two-to-four quarters," Mittal told IANS
in an interview.
In the long term, the export-driven software sector has to
become risk-protected from such uncertainties by penetrating
other geographies and expanding its service offerings to diverse
verticals so as to retain its competitive edge and sustain
the growth momentum.
Discounting apprehensions over meeting the revenue forecast
for the current fiscal (2008-09), Mittal said though the growth
rate would be lower than in the previous fiscal, there was
no cause for alarm, as the base would be wider and in line
with the long-term projection made by the McKinsey report
"Growth will happen but at 22-23 percent it will be lower
than in the last two-three years when the booming IT industry
posted a CGPA (cumulative growth per annum) of 31 percent.
When the base changes (widens), it will be difficult to grow
at the same rate over a period," Mittal pointed out.
As per the Nasscom forecast in June-July, software exports
are projected to grow by $9 billion to $50 billion in fiscal
2008-09 from $41 billion in fiscal 2007-08 and $32 billion
in fiscal 2006-07. As per the McKinsey report, exports are
set to touch $60 billion by fiscal 2009-10 even if the growth
rate remains lower at 23-25 percent.
"We will re-visit our annual forecast in December though
we do a dip-stick all the time. As we are part of the global
world, we are bound to be affected by such events. Being an
integral part of the delivery chain, we are vulnerable to
things that happen the world over," Mittal admitted.
Though the US market accounts for about 60 percent of the
export revenue of Indian IT bellwethers such as TCS, Infosys,
Wipro and Satyam, with the BFSI (banking, financial services
and insurance) segment contributing more, other verticals
such as manufacturing, retail, transport, utility and so on
continue to keep traction.
"I believe we will get some indication over the next
four-five weeks about the impact of the Wall Street turmoil
on servicing the financial sector, especially in the US. In
IT budgets, non-discretionary spend, which is about 70 percent,
will continue to happen. In a downturn, discretionary spend
on new projects, innovation or upgradation gets affected.
The impact, if any, will be on the latter," Mittal explained.
In the IT-enabled services (ITES) such as business process
outsourcing (BPO) comprising voice and data, captives may
get affected while third-party vendors have to be prudent
to minimise the impact in case of business disruption, especially
in transactional or analytic outsourcing.
As part of non-discretionary spend (time and material cost),
firms will continue to outsource ITES/BPO services in areas
such as accounting, HR and logistics.
"The industry has matured to live with one or other crisis
such as currency volatility, global economic slowdown, attrition
and higher wage arbitrage because the fundamentals remain
strong and the value proposition continues to be high.
"This is the time for IT firms to de-risk their marketing
strategy from being US-centric and foray aggressively into
other geographies - EMEA (Europe, Middle East and Africa)
APAC (Asia-Pacific) and Latin America," Mittal said.
"For instance, our penetration into the Japanese market
is a mere two percent though Japan is the second largest economy.
Socio-cultural and language issues can no longer be barriers
in a competitive and global environment."
Admitting that business sentiment turned negative at a time
when the industry thought the worst was over, the former HP
executive said the Indian IT sector had built in certain provisions
based on sub-prime crisis that surfaced last year to neturalise
"In the next two-three quarters, clients in the financial
sector will be conservative, withhold spending on new projects
and delay expansion. On the contrary, they will try to leverage
the vendors' expertise to rationalise operational costs,"
Nasscom is assessing the downstream impact and the possible
fallout if the sub-prime crisis shifts from the US to other
geographies, especially Europe and Asia.
"We don't have evidence of the change. A clearer picture
will emerge when regulators unravel the systemic failures
behind the collapse of the US banking sector," he added.
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