The credit crisis in the US has adversely impacted Indian IT services firms especially those with a bigger exposure to the financial services space. Most companies have seen volumes come off over the last couple of quarters even as pricing remains under pressure.
That may be happening. According to a report in a leading foreign newspaper, the US-based research company Forrester has found that the use of off shoring is becoming more common with 43 per cent of companies stating they were looking to use this kind of service, compared with only 9 per cent that use it at present. The report was based on responses from 947 IT managers in North America and Western Europe.
This cannot but be good news for Indian IT firms which are staring at a significant slowdown in spends. The Forrester study says that 43 per cent of all companies have already cut their IT budgets for 2008 while 24 per cent have put discretionary IT spending on hold. The cutback in spends, the study notes, varies from sector to sector and is different across geographies.
Meanwhile a report by brokerage CLSA observes that spending estimates of industry forecasters tend to lag the actual numbers. The report notes that forecasters often tend to over estimate the intensity of both an up cycle as also a down cycle. While Indian firms have been hoping that the relatively better economic environment in Europe would make up for the challenging environment in the US, recent trends, indicating that the European economy too seeing signs of a slowdown, are cause for concern.
IT firms must be glad that the rupee –which hit a twenty-month low on Tuesday to touch Rs 44.83 against the dollar, continues to weaken. It’s no coincidence that IT stocks have been outperforming the market over the past month; the rupee has slipped from Rs 43.33 at the start of July to 44.83 currently.