NEWS-INDIA: India's IT industry seen simmering down on U.S. economy slow
India's IT industry seen simmering down on U.S. economy slowdown
by Sumeet Chatterjee, India Abroad News Service
New Delhi, Dec 23 - Signs of a slowdown in the U.S. economy and forewarning
of slump in computer sales and shortfall in revenues by the U.S.
information technology (IT) giants is likely to bring its own set of woes
for the Indian IT sector.
And this time, even the domestic software services firms -- an important
segment of the IT industry -- which thus far has felt largely insulated from
the global meltdown in IT stocks, is likely to find few avenues of escape,
say analysts.
"The slowdown in the U.S. economy is already causing concerns to various
industrial sectors, and exports of a variety of products have got a jolt,"
says D. H. Pai Panandiker, a noted business economist and adviser to the RPG
group.
According to him, most companies there - even the blue chip, Fortune 500
firms -- would try to cut costs and investments to keep their bottom lines
healthy. In the process, Indian software companies - which cater to 185 of
the Fortune 500 companies -- are likely to face a slack demand over the next
few months.
In fact, alarm bells are already beginning to sound from the three major
segments of the IT sector in the U.S. -- software, microprocessors and
hardware.
After hardware major Compaq and chip-maker Intel, application software
giants Apple and Microsoft are the latest firms U.S. suffering a downtrend,
forcing them to issue a warning on a possible fall in profits with little
signs of respite in the next quarter beginning January.
Microsoft, in fact, blamed the shortfall to the sluggish desktop
applications market in the U.S. consumer and corporate sectors, as well weak
revenue from its portal subscriptions and online advertising sales.
"All this could result in lower imports by the U.S. I foresee a slowdown for
our software firms from the first quarter of the next calendar year,"
Panandiker told IANS.
Over the last few years, the IT industry has been growing at a healthy pace,
notwithstanding the general slowdown in the Indian industry.
According to the National Association of Software and Service Companies
(Nasscom), software exports crossed $4.0 billion in 1999-2000, are estimated
at $6.3 billion in the current fiscal year. This will further grow roughly
50 percent every year to reach $50 billion in 2007-08, it said.
This growth rate, analysts say, will be difficult to maintain, since
software exports account for a third of the IT revenues in the country.
Sujata Srikumar, director (infrastructure) of credit rating firm CRISIL,
agrees with Panandikar on the possible slowdown in the software sector, but
she feels the impact of that on bottomline will not be immediate.
"At present, the order books of most software exporters are full, so the
profit margins will not take a beating in the short term," Srikumar said.
She, however, added that the impact would be more immediate on the scrips of
software majors.
"The profit warning issued by the blue-chip companies has adversely affected
sentiment in the tech-heavy Nasdaq. Since Nasdaq has strong co-relation with
the domestic bourses, the market capitalization of the domestic IT companies
will also fall over the next couple of months," Srikumar said.
Tracking the recent downtrend in Nasdaq, the domestic software major Satyam
Computer has lost nearly 37 percent from its October levels on the Bombay
Stock Exchange and the Bangalore-based Infosys Technologies' share plunged
by 23.5 percent in the same period to touch its yearly low at Rs. 5,796.40
on Friday.
Foreign funds sold technology shares, in the last couple of weeks, on fears
that a slowdown in global technology spending could hit the long-term growth
of Indian software, although they were expected to maintain strong growth in
the third quarter ending December 31, 2000.
Sanjeev Bhalerao, partner of NetAcross, a Delhi-based e-services company,
said that the companies in India would have to rework their strategies and
become more cost competitive to withstand the prevailing slowdown in demand
in the global market.
"The effect of the slowdown will depend on the areas where the domestic
companies are functioning. The services sector will largely remain
unaffected," he said adding that the technology companies would have to
adopt means to improve productivity and achieve cost efficiency.
Anil Bakht, chairman and managing director of Eastern Software Systems, an
application service provider (ASP), said that as the U.S. economy slows down
the U.S. companies would be looking for more cost effective solutions for
their IT needs, but little can be done to reduce the ongoing expenses on
software and maintenance.
He says: "Luckily for Indian companies this is not an investment
decision...this has more to do with reducing costs...before the crash there
was an unfulfilled demand of programmers in the range of 800,000. This may
go down a bit but will certainly not drop down to zero."
