How the financial meltdown impacts Indian IT

There has been a good debate on the topic and I am sure we all follow newspapers and look out for acquisitions, bailouts, CRR cuts and sensex value. I have been trying to assess the situation and related impact on IT, though some more data points and clarity on market conditions would help build a better perspective. Some say that it will stimulate outsourcing and hence benefit India and China but let me believe that it is something that we do not expect to see in near future. It might happen after 2-3 years, once the dust settles down and companies implement "strategic cost-cutting" or seek "value for money". In the near future, uncertainty will cloud the sky and though most of the companies may not want to play extra-defensive by cutting IT cost, there might seek options to ensure better liquidity and it could mean- no wage promotions or adopting a variable pay model linked with company’s performance in a troubled market.

Does Indian IT get impacted by all this – YES, there is an impact on growth as a good % of total Indian IT market size depends on BFSI and though BFSI sector cannot stop the fixed cost IT operations, it will try to park the new initiatives and defer building new IT capabilities specially when it is operating in a survival mode. The big Indian IT companies will not feel the heat as much as small and mid size companies that have heavily banked on BFSI vertical for revenue. Trouble in finance sector may be contagious for retail markets though we need to wait until new year to assess the impact. Certain lay-offs are sure but I feel that giants like Infosys will be able to sustain their resources by enabling them to work in different domains and technologies.

There are new leanrnings and now IT services need to hedge against such risks by planning a rational distribution of revenue among diversified industry verticals. Hedging should be done by clustering the related verticals and then growth-plan should not count on one “special guy” for continued business. Having said this, some evergreen markets like Healthcare and Pharma should definitely be the focus of IT service companies. At theoretical level, it is relatively easier to do this kind of risk-hedging, however there are companies who try to explore and build on similar markets, especially once they taste little success in a particular industry vertical.

Does it really sets up the stage for golden outsourcing era? Yes, it might but let it be perceived in long term. Some might defer and try to quote a recent happening of City group captive buy-out by TCS but let’s accept that it was initiated 1 year back and hence can be learnt without learning the necessary and easy correlation.

The likely recession, though debatable, does send enough signals alerts for job-insecurity, tight credit process and conservative buying behaviour in future, the impact on Indian IT does not seem to be very huge until it really turns ugly and companies start cutting on IT strategically, Let’s wait for some more time to build a better perspective!