With the US economy – the biggest market for India’s $50-billion outsourcing industry – showing signs of recovery, top honchos at Infosys, Wipro and HCL said their optimism had been proved right.
The financial results of the country’s top three software exporters had already provided signs of recovery earlier this month. India’s software exports industry derives more than half of its revenues from the US.
“The IT industry has seen a better Q2 and given positive guidance for rest of the fiscal. The GDP data reinforces the optimism,” said S Gopalakrishnan, CEO of Infosys Technologies.
While the number two exporter, Infosys saw profits rise by around 7.5% during the September quarter to Rs 1,540 crore, top-ranked Tata Consultancy Services (TCS) saw its net profit grow by 29% to Rs 1,642 crore. Wipro added 37 customers in the second quarter to September-the most in a year-and-a half-and forecast that revenues would rise by up to 4.5% in the three months to December.
Wipro was the first Indian software exporter to provide an upbeat assessment for the industry. The company had said while announcing its financial results during the quarter ending June that things could improve from the second half of this year.
“Any economic recovery in the US, whether it’s consumer spending or capital markets, is really good news. For the tech industry and business of outsourcing, companies will step up investments. They have the money, what’s been holding them back is sentiments,” said Girish Paranjpe, joint chief executive officer of Wipro, India’s third-biggest software exporter.
Many customers, including Citigroup, JP Morgan and Bank of America have been holding back new tech investments because of a worsening economic crisis. With the US economy showing signs of recovery, Indian tech vendors believe the worst could be over.
“There are three phases of growth-negative, wait & watch and positive. The global economy is in the wait & watch stage currently where everyone is planning the growth. The US growing at 3.5% indicates that economic growth will definitely happen in a quarter or two, which will eventually increase spend on IT,” said Vineet Nayar , chief executive of HCL Technologies.
Experts such as Andrew Bartels, vice-president of Forrester Research, said in a phone interview that the $567-billion market for IT goods and services in the US could see positive growth. “We are close to the bottom, and we expect the upturn to happen in 2010,” he said. According to Mr Forrester, the outsourcing market will grow at 4-5 % in 2010.
Mr Forrester also advised tech vendors to step up their marketing and sales activities.
“Now is the time for tech vendors to get ready to take advantage of the rebound in tech-buying as CIOs get the word from CFOs that capital investment can go ahead,” Mr Bartels said in his September report. “With 2010 IT budgets not yet finalised, it is a critical time to remind CIOs of the value and benefits that your solutions can provide to their IT departments,” he added.
Meanwhile, Indian companies seeking to grow their revenues from European markets in order to offset the US slump may find the going tougher. “Europe is the second biggest market for Indian IT companies, and the UK-the biggest European market-is coming out of recession in a very sluggish manner,” said Mr Bartels.