Top Indian information technology (IT) companies are likely to maintain their investment-grade ratings even if demand weakens, according to a Standard & Poor's Ratings Services report — Big three Indian IT companies are well programmed to handle uncertain demand.
The ‘Big Three' companies are: Tata Consultancy Services (TCS: BBB+/Stable/--), Infosys (BBB+/Stable/--), and Wipro (BBB/Positive/--). “The largest Indian IT companies have strong margins, are cost-competitive, and have proven delivery models. These attributes will help them to weather uncertain and volatile demand,'' said S&P credit analyst Abhishek Dangra.
Bigger challenges
The report suggests that the three leading Indian IT companies will be able to grow at a faster pace than the global industry at least over the next few years. S&P expect these companies to maintain industry-leading operating (earnings before interest, taxes and depreciation) margins and grow in double digits in the next 12 months.
“Bigger challenges for the Indian IT companies will occur in the longer term. We expect the cost advantages of these companies to diminish as foreign competitors increase their already-large employee bases in India. Moreover, business and reputation risk is rising due to increasing protectionism. But we expect the three largest Indian IT companies to adapt to the challenges, as they have in the past,'' the report said.
The report says that companies also face issues such as dependence on the slowing economies of the U.S. and Europe, visa issues, rising wages in India, and foreign exchange volatility. The sovereign budget cuts across the U.S. and Europe could hurt business sentiment and lower private-sector IT spending. “High unemployment rates, slowing growth, and political activism in many countries are generating opposition to outsourcing,'' said Mr. Dangra. “Still, we expect focus on cutting costs in a slowing global economy to support demand for outsourcing to India. Such a practice results in significant cost savings,'' he said.
