With the U.S. economy in complete meltdown, the party is over for Indian outsourcing firms like Tata Consultancy Services, Wipro, Infosys, Polaris, Satyam et al.
Some Indian software firms like TCS have already reported delays in orders from their top clients.
U.S. financial services firms that have taken a severe beating and borne the brunt of the recent carnage on Wall Street are among the major clients for several Indian software houses.
The big question now is when will Indian firms – that staffed up in the go-go days of hyper growth – start laying off employees, a practice that U.S. companies have turned into a fine art over the last couple of decades.
For the last 10 years, Indian IT firms have been growing like gangbusters, creating an oasis of software millionaires.
But as a story in today’s Wall Street Journal (subscription required) makes it clear, the ripple effects of the U.S. downturn will be felt in India:
Analysts say Tata Consultancy Services Ltd., Infosys Technologies Ltd., Wipro Ltd. and Satyam Computer Services Ltd., all of which provide outsourcing services, mainly to the U.S. market, could see their revenue growth slowing to an average of 20% in the new fiscal year. That would be down from the 35% average posted the past three years.
“The immediate fallout [from the U.S. economic woes] could be order delays and pressure on pricing. I don’t rule out job cuts down the line,” says Harit Shah, an analyst at Mumbai-based brokerage firm Angel Broking.
Any negative impact on the Indian software industry will exacerbate the decline in the housing market in the big cities like Bangalore, Hyderabad and Chennai, a development that could have reverberations in other sectors of the economy that’s already feeling the pinch of high gas prices and increase in prices of essential commodities.