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Everyday the NASDAQ sinks lower and lower and the big boys in the US announce the dreaded profit warnings. The scenario seems bleak at best. The Indian IT industry, which grew its revenues from a mere $100 mn in early 90’s to $5.7 bn in year 2000, has also been affected. Indian majors like Infosys, Satyam, Wipro etc. are also experiencing a slowdown and have down from their glorified peak levels. So can the Indian IT industry survive the US slowdown?

As per a recent Nasscom Mckinsey study it would seem so. The report states that the Indian IT industry is set to provide a third of India’s exports in 2008 and will contribute to 7.5% of India’s growth in GDP over the next decade. The industry is expected to employ 2.2 mn people and India is targeting to capture 5% of the $585 bn global information technologies services market within the next 3 years taking its turnover to $ 30 bn .

A recent report by Goldman Sachs-a leading international securities firm pointed out that Indian IT firms are re inventing themselves for the next technology cycle and old standards are giving way to new web enabling opportunities. US accounts for over 60% of the IT exports, and Indian companies low cost high skill resources, will continue to receive attention from the US in coming years. The average operating margins of Indian IT companies stand at 23 to 33 percent as compared to the 6-11 percent margins of the US broad line IT service providers. The report also threw light on the fact that Indian companies were trying to move up the value chain so as to i8mprove project scope and tap more diversified markets. The report concludes that though the US slowdown is a worrying reality for the Indian IT companies the Indian software industry has the potential of becoming the largest in the world and revenues are expected to cross $9.4 bn in 2001\2.

Mutual fund industry which has a heavy exposure to the Indian IT industry also closely tracks the US impact on the industry. As per The President and CEO of Birla Sun Life Asset Management Mr.Jeremey Beswick, good IT stocks with clear cut business plans will rebound from the current recession. He also stated that the US economy was more robust than what was assumed and with the recent fed rate cut, one would soon see the US economy bouncing back. This would result in a fillip to the Indian IT companies and their order book positions would improve.

The dark horse according to analysts will be HCL Technologies-which has a strong opportunity into technology applications development and R&D outsourcing. Infosys , the leader, has been pronounced to have one of the strongest business models in the industry and sound business execution methodologies. Satyam with its diverse business partners represents a good case where the company is not dependant a couple of business partners for order book positions.

So, all in all indications are that the Industry will survive the US slowdown and perhaps the downturn represents a good time to invest in the IT majors who will prove that they are survivors after all.

Aru Srivastava

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