The Hindu : Business : BFSI meltdown: $1 b revenue impact likely

Online edition of India's National Newspaper
Thursday, Sep 18, 2008
ePaper | Mobile/PDA Version

Business

Business

BFSI meltdown: $1 b revenue impact likely

Shanthi kannan

Indian IT companies go into stock taking mode

Impact will be short-term, says Nasscom
Other sectors will be cautious on IT spend

CHENNAI: Even as a series of bad news from the U.S. has hit the global financial scene hard, the Indian IT companies have gone into a stock taking mode. While some are still struggling to comprehend the full impact of the developments in the U.S. market, many others have chosen to put a positive spin on the crisis.

National Association of Software and Services Companies (Nasscom) has acknowledged that the Indian IT-BPO sector is a part of the global ecosystem, which is facing an uncertainty of its worst kind. This is consequent to the sub-prime crisis, which began last year. Many companies that were being directly impacted by it had already prepared for this. According to a preliminary analysis of Nasscom, the impact of the current situation will be short-term and company-specific.

The question, however, is: What would happen to companies which have major exposure to BFSI (banking, financial services and insurance) segment?

“We are likely to see a consolidation in the IT/ITeS industry this year. Some vendors who have lesser exposure to the BFSI space will gain and those with significant exposure will be impacted. While the announcement about the financial services companies being hit has come about all of a sudden this week and at a rapid pace, that may not have been expected, the impact on IT /ITeS companies may be a little more gradual and may come to light over the next 2-3 quarters rather than immediately. The overall revenue impact on the IT and ITeS industry could be anywhere between $750m and $1billion, as a result of the BFSI meltdown. One hopes that the cough does not catch Europe. If it does, then the impact on the overall industry could be even more significant,” says Shiva Ramani, Chief Executive Officer of Cybernet-SlashSupport (CSS).

Not just BFSI, other sectors too will be cautious on their IT spend. This will result in a slowdown in the annual growth rate of the IT industry. So far, the growth rate of the Indian IT industry has been around 25-27 per cent. “I will be happy if it does 15-17 per cent this year,” says Phaneesh Murthy, Chief Executive Officer, iGATE Corporation.

Job losses

According to Mr. Shiva Ramani, the job loss due to the current crisis could be anywhere between 15,000 and 25,000 people in the Indian IT industry over the next six months (October 2008 to March 2009). “The industry could see a move away from ‘hiring-in-advance’, says Mr. Shiva Ramani.

Some key IT spending surveys have said that off-shoring will increase considerably when companies get into a cost rationalisation mode. This is primarily because most companies have outsourced/offshore earlier and understood the entire off-shoring cycle. Though there could be delays in decision-making initially, once that hump is crossed, off-shoring is bound to pick up. On the impact of the current crisis on mid-cap companies, Mr. Murthy said companies that were focussed on providing services to just one or two sectors could now attempt to broadbase and try to lower their client or sector concentration. Companies could also tighten their belts to bring down operational costs, he avers.

Printer friendly page
Send this article to Friends by E-Mail

Business

News Update

Stories in this Section