With the majority supporting Britain’s exit from the European Union (EU), India’s IT majors are likely to see a phase of uncertainty in the near term.
IT industry body National Association of Software and Services Companies (Nasscom) termed Brexit announcement as a phase of uncertainty in the near term. However, Nasscom said it saw a mix of challenges and opportunities in the longer term. Some of the near-term ramifications that Nasscom foresaw on the technology and services sector include — a likely decline in the value of the British Pound, which could render many existing contracts losing propositions unless they are renegotiated; Indian IT companies may need to establish separate headquarters/operations for EU which may lead to some disinvestment from UK.
Europe is the second largest market for the Indian IT-BPM industry, constituting almost 30 per cent of the industry’s export revenue. For the fiscal FY 16 overall IT exports was about $110 billion of which 62 per cent was contributed by the US, UK contributed 17 per cent and continental Europe contributed 11 per cent.
Mid-tier IT services company Mindtree which is planning to strengthen its presence in the UK and Europesaid it observing the developments, and will take the necessary steps to align plans based on its clients’ priorities.
“We foresee significant uncertainty and reprioritization of business and IT priorities across companies in theUK and the EU,” said Rostow Ravanan, CEO & Managing Director, Mindtree.
As per industry watchers, of the total revenue from the European market the UK contributes major portion to Indian IT companies’. Many India IT companies use Britain as the hub of their operations in Europe and are expanding their business in continental Europe using Britain as the gateway.
Another Indian player, Tech Mahindra which gets a significant business from the UK said, it is on wait and watch mode but do not see any imminent need for worry.
CP Gurnani, MD & CEO – Tech Mahindra said, “We follow an long term hedging policy on our operational exposures and we also expect that the USD which is approximately 50 per cent of revenue stream will appreciate against the Indian Rupee. The combination of these will mitigate the operational impact on our profitability.”
The company also said its exposure to BFSI segment and exposure to UK and European banks are likely to see some minimal impact in the short term.
With the early trend of the referendum started coming IT sector was one of the most impacted sectors in the India bourses. The scrips of all the major IT companies were trading in red. Some of the major losers during the day’s trade were Infosys, Wipro, TCS, Mindtree, and Hexaware among others.
India’s third largest IT services company Wipro which employs around 4,000 people in the UK said it is watching the potential impact of Brexit on major issues including mobility of labour, changes in the financial system, and the currency. During the fourth quarter ended March 31, 2016 Europe contributed to 25.6 per cent of its overall revenue.
“We remain committed to the UK and are optimistic that the close ties between India and UK will further strengthen in the long run and open up new opportunities for us,” said Wipro spokesperson in an email response.
For India’s second largest IT services provider Infosys also Europe is a huge market with significant presence in the UK. Of the company’s overall revenue about 23.4 per cent comes from Europe.
“We are watching the situation closely. There could be small time short term effect on currency and also potentially on business, we are watching those very closely,” said Infosys CEO &MD, Vishal Sikka.