IT vendors feel the heat as US election nears
Source: www.thehindubusinessline.com
Bangalore, Sept. 1 Indian IT vendors may see a decline in new client additions in the US, their largest market, ahead of the presidential elections, as potential customers delay their plans even as the anti-outsourcing rhetoric starts building up.
Analysts say the prevailing uncertainty due to the credit crisis and economic slowdown would intensify ahead of November elections as clients continue to postpone their spending plans, but large IT vendors such as Infosys Technologies Ltd and Wipro Ltd said such a delay would not have any material impact on them.
“So far we are on track,” said Mr V. Balakrishnan, Chief Financial Officer, Infosys, referring to the new client wins without disclosing specifics. While a hue and cry is raised against outsourcing once every four years, the economic reality is that local US firms are hurt by lack of resources, Mr Balakrishnan said.
Obama comments
Making a strong anti-outsourcing pitch last week, the Democratic Party’s presidential candidate, Mr Barack Obama, said he would stop outsourcing of jobs overseas to other countries by ending tax breaks to companies.
For Indian vendors, already battling a slowing business from the credit-crisis hit US, Mr Obama’s strong anti-outsourcing comments and the potential dip in new client wins has come as a double whammy. “I hope it’s a short-term thing,” said Mr Harit Shah, equity analyst at Mumbai-based brokerage firm Angel Broking Ltd.
“Our pipeline is at same level as it was a couple of quarters ago, with a slightly upward bias,” said Mr T.K. Kurien, head of global programme at Wipro Technologies, through which the company is targeting large deals of over $100 million.
Adding is critical
Indian vendors earn about two-thirds of their revenues from the US, the largest IT services market worldwide. New customer wins in the US account for a little over half the total client additions for a majority of these firms.
Adding new clients has become critical for the Indian firms to sustain their growth rates as they are unable to grow the existing customers. National Association for Software and Services Companies (Nasscom), the apex industry body, has forecast that Indian IT exports would grow by 25 per cent for the current fiscal, down 4 per cent from the previous year.
“Outsourcing itself is extremely strong, but there could be a slowdown ahead of elections as companies would try to figure out which way the policies would blow,” said Mr Siddarth Pai, Managing Director of Indian operations at TPI Inc, an advisory firm which accounts for a fourth of global outsourcing deals.
“I don’t think the US will come about such a protective legislation,” Mr Pai said, referring to the talk of ending tax breaks for companies that outsource.
Avoiding visibility
“Large deals that result in some lay-offs are being held back as customers don’t want any visibility in the election year,” said Mr Avinash Vashistha, CEO of Tholons, an advisory firm. If customers want to do it, they would the deal with multinational vendors such as IBM and Accenture that now have a relatively stronger offshore presence, as such deals are looked at being done in tough business conditions.
Mr Sabyasachi Satpathy, head of research at neoIT, an offshore advisory firm, sees a pause on projects related to discretionary spends such as investments in new technology and applications. “Once the elections are over, we expect clients to move out of uncertainty,” Mr Satpathy said, adding that a clear trend would emerge by January-February time frame.
“Our deal pipeline is on expected lines and we have not seen any slowdown,” said Mr Srinivas Vadlamani, Chief Financial Officer at Hyderabad-based Satyam Computer Services Ltd. Satyam, which added 34 new customers last quarter, is chasing 15-20 large deals of over $50 million at any point of time, Mr Vadlamani said.
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