The US financial crisis has made headlines all over the world and this meltdown will pose a long lasting impact on the $50 billion Indian IT industry. Companies that bet heavily on banking and financial sector will find no safe haven whatsoever while others will look towards taking the shelter of non-banking sectors to keep their business afloat. The Indian IT sector is facing tough times ahead as it is evident from Nasscom's downward revision of growth forecast. It is predicted that while the big players in the IT industry will be able to survive the shock, the small ones will not be able to sail through.
Analysts are expecting that this global meltdown will continue throughout the fiscal year 2009-10. Till then, the world will have to witness to huge salary cuts, single digit hikes, unoptimized employee lay offs and insipid sequential growth. As per analysts, the second quarter will be the weakest one in many years. It is expected that the rupee will not show any further depreciation, thus nullifying every possibility of any future currency gains. None of the major business entrepreneurs will try to place its foot in this otherwise crestfallen market.
The most crucial factor which is posing a threat to IT majors is the fall in pound and Euro against the dollar which is the reverberation of panic selling of investments by foreign institutional investors due to their lost confidence in global markets. This has in turn resulted in demand for the dollar against the pound and the Euro. The backwash effect is a sharp fall in the value of those currencies leading to a decline in the operating profit margins of IT companies exposed to pound or Euro revenue. The key players in the industry that includes Tech Mahindra, Infosys and Wipro earn a major chunk of their revenues from British and European clients. And the fall in currency values of these countries will adversely affect the business of IT giants. Further, the $700 billion bailout by the US government is backed by no assets, & hence will certainly lead to a long-term global inflationary trend.
In the current scenario, the best practice which the IT sector must employ to survive the crisis is to resort to other destinations to make their revenue portfolios risk free. With regards to this, investment surplus countries like Russia and West Asia are preferred destinations to look forward to.
2 comments:
Indian IT industry has always been dependent on the U.S and that's how it has been so much profitable. There is no doubt the dependency has to be reduced and newer markets have to be tried out, but whether they can maintain their profit margins in such markets is something we'll have to wait and watch.
Good post.
( Rediscovered your blog btw :)
Indian IT industry has to invent more than it has today, outsourcing is one source of money making but developing products could be another venture. http://inquisitiveaboutfinance.blogspot.com
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