Talk of IT budget cuts in US hits blue chips
posted in Outsourcing to India |Source: economictimes.indiatimes.com
MUMBAI: Worries over the impact of a firmer rupee have taken a backseat in the minds of investors, but the threat of a cut in IT budgets by US companies has assumed more importance, driving software stocks down, analysts said.
Concerns over a slowdown was rekindled earlier this month, when tech majors such as IBM and Cisco cautioned investors of a possible softening in demand from American businesses. Multi-billion dollar subprime-related losses disclosed by the likes of Citigroup, Merrill Lynch and Barclays have also fuelled the negative sentiment.
“BFSI spends in the next year may be muted. That is why IT stocks are being hammered,” Angel Broking research analyst Harit Shah said, referring to the banking financial services and insurance sector.
Shares of Infosys Technologies, Tata Consultancy Services (TCS) and some other Indian IT majors are trading near their 12-month lows. “At one stage, rupee was the concern. But today, US slowdown is more of a concern. Any US slowdown will affect IT spends,” said Centrum Capital head (equity) Mayank Dalal.
Industry officials said the final word is not yet out on the shape of IT spending in 2008. “Subprime concerns leading to a possible US recession and some kind of a slowdown has seen stock prices fall,” admitted Satyam Computer Services CFO V Srinivas. “But the evidence is still non-conclusive. We have not received any indications of demand slowdown from our customers. The US could escape with a soft landing.
Only if the US economy goes for crash landing, could there be problems,” he added. Srinivas said that even in the case of a recession, cost-cutting by US firms would lead to higher outsourcing, benefiting Indian IT providers. “If there is a softening in demand, it does not mean bad things are in store for Indian IT firms. The fears are overdone,” concurred a senior analyst at a brokerage firm.
The negative trend is also reflected in ADRs of Indian firms listed on overseas stock exchanges. ADRs of Infosys and Satyam are trading at $41.11 and $13.29 respectively, close to their 52-week lows of $40.01 and $12.49.
ADRs of Wipro, which recently acquired Infocrossing — a non-discretionary IT spend — have fallen to a lesser extent and are at $25.49, compared to its 52-week low of $19.35. The ADRs of business process outsourcing (BPO) providers have also fallen, but to a lesser extent. IT budgets of US companies are decided in the December-January period.
