Tuesday, August 9, 2011

Low US and European ratings: Difficult times for IT sector ahead?

Most discussed and hot news is how much effect does low US and European economies will have on Indian market especially IT sector.
The US accounts for almost 60% of the sector's revenues, and Europe another 20%.

Though the present problem with the US economy is around sovereign debt concerns, the worry is that going ahead this will affect US private sector growth, and therefore their IT spends and therefore the Indian IT sector could be in for difficult times.
Siddharth Pai, MD of global sourcing advisory services firm, said "if the US government cuts public spending to control its deficit, then private sector growth could be impacted. This is because public spending cuts could lead to lower investments and job creation, thus slowing down overall private sector growth."

Srishti Anand, IT analyst at Angel Broking, said "IT companies are export oriented and are hugely dependent on the US markets. Therefore negative news emerging from that region can lead to fall in stock prices'.

In the 2007-09 global financial crisis, the Indian IT sector was severely impacted. While revenue growth rates for top tier companies like TCS and Infosys fell to single digits, gross hiring numbers were also hit. Mid-tier IT companies were impacted to a greater extent as clients preferred to work with larger and more trusted names.
T K Kurien, CEO of Wipro's IT business, said that it is too early to make an assessment. But he said the industry is far more prepared for any change in the macroeconomic environment now than it was in 2008.

Some days back Prime Minister Manmohan Singh said "On the international front the situation is not that positive. The international global recovery is fragile. Even the United States growth rate is faltering".

Finance Minister Pranab Mukherjee assured the global investing community that the Indian government will push economic reforms forward even as strong fundamentals will ensure flow of capital to growth areas.

“The recent developments in the US and the Eurozone have injected certain uncertainty in global markets. These developments could have some impact on India,” the finance minister said in a statement.
“But as India’s growth story is intact and its fundamentals strong, we are in a better position than many other nations to manage the challenge,” he said, after a key index of Indian equities had seen a dip of nearly 550 points or 3.15 percent intra-day.
“I would like to repeat that our economic fundamentals are sound. We would also focus on encouraging greater domestic consumption and give impetus to the drivers of domestic growth,” he said.

With the bold statements from the government, DO you think IT sector of India can sail through in the current situation.

Feel free to post comments and express your views.