The Bombay Stock Exchange (BSE) IT Index closed at a four-year low at 2,291.33 on Friday following fears that a weak global economy may prompt companies to slash their technology expenditure. Earlier on October 10, 2004, the BSE IT Index had closed at 2,284.37 on BSE. Satyam Computer Services (Rs 220.75), Rolta (Rs 124.65) and HCL Technologies (Rs 107.15) closed at their 52-week lows on Asia’s oldest bourse.
TCS, the country’s largest IT exporter by sales, lost 7.6 per cent to Rs 483 on Friday against its previous week’s close of Rs 521.70 on BSE. Infosys Technologies, the second largest IT exporter, slipped by 2.5 per cent to Rs 1,107.40 (Rs 1,135.70) and Satyam Computer Services plunged 1.6 per cent to Rs 217.40 (Rs 224.40).
The BSE IT index declined 2.8 per cent to 2,291.33 against the last week’s close of 2,357.36, underperforming the Sensex. The barometer index was up by 8.08 per cent to 9,690.07 on Friday against 8,965.20 at the start of the week.
The BSE IT Index has also underperformed the market over the past one month till December 12, 2008, falling by 12.97 per cent compared with 1.61 per cent rise in the Sensex during the same period.
According to a Citigroup report, industry participants indicated a sharp deterioration in the near-term visibility for IT service providers. Many buyers, especially in the financial services segment, seem to be considering IT budgets that are lower by as much as 10-20 per cent.
This kind of a decrease is sharply lower than a CIO survey by Citigroup, which indicated that IT spend would be down sequentially, but still up by a per cent year on year.
According to a Credit Suisse report, Indian IT companies have created a greater flexibility in their cost model since 2000-01 and hence they are expected to have a cost flexibility of 650-800 basis points (as a percentage of revenues) on the back of variable wages (300-450 bps), better utilisation (50 bps), change in employee mix (50-100 bps), lower travel costs (50-100 bps) and reduction in other costs. This should allow companies to maintain margins in a tight band despite a 500-600 bps drop in pricing in 2009-10.
