IT Firms Struggle with Rising Input Costs & Demand Slowdown

Bangalore: A similar crisis of 2008 came into picture as the report cards of large It firms came in putting the analysts in doubt about the modest growth forecast by industry body Nasscom.

The outsourcing service provider, Cognizant Technology Solutions is seen to grow at an invincible speed, in spite of the entire tough demand environment. The company revised its growth expectation from 23 percent to 20 percent and it lost almost a fifth of its market value in this process.

Kawaljeet Saluja, Rohit Chordia and Shyam M, analysts at Kotak institutional equities stated in their report that slowdown in technology spending by banking & financial services firms along with spending by telecom companies pose significant risk for Indian IT services as together these sector contribute around 40 percent of revenues. The recent set of earnings numbers from large IT firms also throws up some attention-grabbing pointers, similar to 2008-09 fiscal, when corporations in the U.S. and Europe congealed technology spending due to the global financial crisis, which was just starting.

The top four IT firms saw an increase in revenues by a sheer 1.2 percent which is the slowest since the fourth quarter of 2009 fiscal. Per-hour rates or pricing charged by IT firms, declined by 1.2 percent which was the sharpest quarterly decline since the last quarter of 2009 fiscal.

Analysts have started to draw parallels with the crisis in 2008, from which the global economies still have not fully recovered. Moshe Katri, Managing Director Cowen & Co, a security research firm told ET, “Cognizant reset its guidance from 23 percent to 20 percent, but why did the stock fall 20 percent? The reason is nobody believes the reset is the real reset." Katri added also added, "This is beginning to look similar to 2008. Initially, it was budget delays, then things got worse and it got a lot worse after that.”