Indian IT sector not at fast rebound in year 2010 caution about these stocks

India’s $60-billion technology services industry may have hoped for a rebound in 2010 after gloomy 2009, but days into the New Year, the intial optimism is fast wearing thin.

Industry officials, analysts and other experts believe that India’s IT sector, a habitual growth monster until the crisis period last year, is unlikely to return to the ‘business as usual’ situation that existed before the crisis and will have to soon recalibrate itself to a new reality and new growth strategies.

The US and European markets, which account for about 80% of Indian software exports, are yet to show signs of a pickup in demand for outsourcing that was expected in the run-up to New Year. Taking note, industry lobby group Nasscom said it does not see any immediate upward revision in the exports growth target, which it had pegged to an all-time low of 4-7% in mid-2009.

After a compounded growth of over 30% since the 2003-04 dotcom bust, software export growth fell to 16.3% at $46 billion last fiscal against 27% at $40 billion in 2007-08. Last year saw Indian companies embracing survival strategies, moving to fixed costs and bundling software services with back-office operations and remote infrastructure management, to retain customers and fuel growth.

Besides tough global headwinds, Indian providers are also up against a stronger rupee that will reduce margins. A Bank of America-Merrill Lynch (BoA-ML) tech sector report expects the Indian currency, which has appreciated about 4% vis-à-vis the dollar in the last quarter, to strengthen further over the next few quarters at Rs 45 by March-end and Rs 43 by December 2010.
Dollar appreciating (less value to Indian rupee) will reduce the margins of IT companies as most of its revenues comes in dollar.

Tough Competition
A Bank of America-Merrill Lynch (BoA-ML) also notes that Indian companies will face stiffer competition from global vendors. New competitors such as Dell, which bought out Perot in September 2009 to strengthen its services offering, are beginning to turn the heat on Indian IT. Dell, for instance, plans to target $20-50 million contracts.

Others such as IBM, Accenture and HP now have strong low-cost service delivery options. Their deeper domain expertise also gives these firms another edge over Indian providers.

Disclaimer: Information presented on this site is a guide only. It may not necessarily be correct and is not intended to be taken as financial advice nor has it been prepared with regard to the individual investment needs and objectives or financial situation of any particular person. Stock quotes are believed to be accurate and correctly dated, but www.daytradingshares.com does not warrant or guarantee their accuracy or date.
www.daytradingshares.com takes no responsibility for any investment decisions based on recommendations provided on website.
Financial contents like Technical charts, historical charts and quotes are taken from NSE and Yahoo sites.
Note - All quotes are delayed by 15 minutes and unless specified.
Please read at www.daytradingshares.com/disclaimer.php before using any material or advice given at www.daytradingshares.com
Copyright © 2010 DayTradingShares.com. All Rights Reserved