Wednesday, July 29, 2009

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Nasscom sees lower Indian IT exports

The country’s software and services sector is likely to see single-digit growth in 2009-10, a new low for the $60-billion industry that grew 16.3% last year despite the global economic downturn.

Software industry body Nasscom, in its revised exports growth estimates to be announced in Chennai on Wednesday, is likely to scale down exports growth target to single digits for 2009-10, said people familiar with the development. This is the third such revision by Nasscom in the past 12 months.

The only silver lining for the sector, which saw demand shrinking in its largest markets, is high domestic demand, although it’s not enough to offset the fall in exports. Earlier in February, Nasscom had reduced IT exports growth target to 16% from its forecast of 22-24% made in mid-2008.

The industry has been consistently clocking above 30% growth for most parts of this decade. While Nasscom was unavailable for comments ahead of the formal announcement, industry watchers say decline in technology spending by global majors, pricing pressure and an overall bleak economic outlook have resulted in a lower growth outlook.

India’s largest software exporters TCS and Infosys have predicted tough business environment this year. “We need to watch the ground as we expect shocks along the way ... Recovery is not something that’s going to be very soon,” said S Ramadorai, chief executive officer of TCS, after announcing his company’s better-than-expected numbers for the first quarter.

Infosys also expects pricing pressure to hit profit. “The pricing environment continues to be challenging. There are ongoing negotiations with clients,” its chief operating officer SD Shibulal said in the company’s guidance for this year.

The grim outlook is corroborated by recent industry outlooks by Gartner and Technology Partners International (TPI). The TPI Index, brought out last week by global sourcing advisory firm TPI, measures outsourcing contracts of over $25 million or more.

TPI said the banking sector, traditionally a heavy adopter of outsourcing services, has slowed its activity significantly in the wake of last year’s financial crisis. Oil & gas, food & drink and consumer durables, to name a few, also slumped in 2009, leading a reduced demand for technology services.

Compared with the first six months of 2008, which saw record levels of sourcing activity, the market in the first half of 2009 awarded 11% fewer contracts with 22% lower TCV (total contract value) and 28% lower ACV (annualised contract value, which is TCV divided by duration of contract). The actual number of contracts dropped to 135, a fall of 7.5% from the first quarter to second quarter this year.

Driving the decline was the absence of mega deals in the US and Europe and lower spending globally on business process outsourcing. “The balance of 2009 is likely to remain challenging and we will see lower topline growth. We do not expect total contract awards and TCV to match 2008 levels,” said Sid Pai, partner & managing director, TPI India.

Consultancy firm Gartner said the total global IT services market will decline by 5.6% from $805.9 billion in 2008 to $761 billion in 2009. In fact, while the market will improve in 2010 to $784 billion, it will take longer to touch the levels achieved in 2008.

“While the global economic downturn shows signs of easing, this year IT budgets are still being cut and consumers will need a lot more persuading before they can feel confident enough to loosen their purse strings,” said Richard Gordon, research vice-president and head of global forecasting at Gartner.

Seems like no green shoots for the tech guys as yet. They will have to work hard to get business and move up the value chain quickly to maintain margins and growth momentum in the current environment.

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