The weak spending by U.S. and European companies coupled with slow down in the domestic market is likely to affect the Indian outsourcing companies in the second quarter. It is estimated that the growth will be restrained to single digit because of the slow recovery of the economy and considerable decrease in number of new contracts signed.
According to the latest reports, in a crisis driven market, clients look out for more technological support from their service providers like cloud based solutions and specialized back office services. Indian outsourcing companies have been slow in addressing to these changing demands of the customers.
Indian outsourcing companies earn three-fourth of their revenue from U.S and European clients. With US economy not showing any sign of recovery and the extended euro crisis, it is forcing these customers to hold back their spending. Moreover, the new war of words between the US presidential nominees Romney and Obama on outsourcing is compelling the US companies play it safe and to keep the jobs inside the nation.
Hopes of recovery are fading further as companies like Infosys and Wipro has reported 2% growth for the first quarter. Infosys, the outsourcing giant in India has forecasted a revenue growth of 8-10% for the fiscal year 2012-2013, but have revised their revenue earning to be as low as 5% for the current year after coming out with the quarter one results.
Wipro, another giant in outsourcing industry has reported a growth rate of 20% for the last fiscal year but is witnessing a steady decline in revenue growth this year.
For the second quarter, analysts expect that Infosys and Wipro will make little or no growth in terms of sales. The companies are under pressure to deliver more value for dollars spend by their clients. Further, as clients are aware of the weakening Rupee value and the benefits that it brings in for the exporters, the clients are demanding for more services under the existing outsourcing contracts. This again compels them to compete with giants like Accenture and IBM.
Shares of Infosys have fallen by 11.5% due to the slow growth reported by the company, while that of Wipro has gone up by 8.7%.
Global Outsourcing industry growth rate was down by 15% in fourth quarter of last year and since then there is declining trend in the overall growth. According to NASSCOM, the industry body for IT/BPO companies in India, the outsourcing industry in India would grow at a rate of 11 to 14% for the current fiscal year to reach $16 billion.
However, companies expect to make some profits in terms of the weakening rupee for the second quarter but that growth can’t be taken as an indication of recovery in the industry.