India tech sector braces for slowdown after US downgrade
India's technology companies are bracing for a potential slowdown in growth after a historic U.S. credit downgrade over the weekend heightened fears of a double-dip recession in the largest outsourcing market and sparked a sell-off in IT stocks Monday.
Indian technology companies earn more than 80% of their revenue from the U.S. and Europe. Coupled with a debt crisis looming over Europe, the Standard & Poor's U.S. downgrade is raising concerns of a return to the recessionary times of 2008 when the local software industry bore the brunt of lower spending by cash-strapped clients.
The Bombay Stock Exchange technology index closed 4.3% lower Monday, leading the 1.8% downfall in the broader Sensex. The downgrade may lead to a slowdown in business in the immediate term, Shami Khorana, president of the Americas division of HCL Technologies Ltd., told Dow Jones Newswires late Sunday. Clients in the U.S. might feel cost pressures immediately and go slow in spending decisions, Khorana added.
Shares of HCL, the fourth-largest India-listed software exporter by sales, closed down 5.8% at INR419.00 after touching their lowest level since December. Second-largest, Infosys Ltd., echoed HCL's concerns, saying it is seeing fears of another recession in the U.S. and a debt crisis in Europe. Infosys shares dipped 4.7% to INR2,468.00 after touching a 52-week low of INR2,431.40. Infosys, whose financial performance has been patchy recently, has been consistently maintaining a cautious business outlook, citing the volatile global economy.
Mid-sized MindTree Ltd. said it is even more cautious about its outlook towards IT outsourcing than it was four weeks ago, while India's main software trade body is asking technology companies to maintain a cautious outlook. Ratings agency Crisil said it expects the U.S. downgrade to slow the growth of Indian exports--which account for almost 90% of revenue for Indian software companies.
However, Infosys, Wipro Ltd.-India's third-largest India-listed software exporter-and MindTree said the industry is better prepared than in 2008 to withstand a global downturn. Sector leader Tata Consultancy Services Ltd. stood apart, maintaining its bullish outlook. TCS said it isn't seeing any changes in demand in North America and Europe."We don't see any material impact from the sell-off in global markets," N. Chandrasekaran, chief executive and managing director, said in a statement.
While TCS's shares closed 4.5% lower at INR1,009.25 after hitting a near 10-month low of INR996.90, Wipro ended down 2.5% at INR358.65. Wipro touched a new year's low of INR337.75 N. Chandrasekaran, chief executive and managing director, said in a statement. While TCS's shares closed 4.5% lower at INR1,009.25 after hitting a near 10-month low of INR996.90, Wipro ended down 2.5% at INR358.65. Wipro touched a new year's low of INR337.75.
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