US downgraded by S&P in Aug 2011; Impact on Indian IT and BPO sector

August 8, 2011: Standard & Poor’s, a credit rating agency in the United States downgraded the rating of the country from best-quality no risk borrowers to a nation with long term credit risk. According to the rating the country is downgraded from AAA to AA+.   

Now the question arises, will there be any impact of this on the Indian IT and BPO sector?

The downgrading of US obviously has an impact on India. According to the Finance Minister of India, Mr. Pranab Mukherjee described the situation as “grave”. But the general feeling is that the extent of impact will be low.

The immediate impact is on the investment flow. Investors all around are in a dilemma and will take time in deciding on investing more in the IT and BPO sectors. The Indian IT sector shares a huge stake in the Unites States market. The fluctuation in the US economic conditions will naturally hit the Indian IT and BPO firms badly as they have their biggest client base still in US. After the news of United States downgrading came on Friday, companies such as TCS were badly affected and were trading at a six months low.

According to the National Association of Software Companies (NASSCOM), the impact of US downgrading on Indian IT and BPO sector is very low. In fact the industry feels that there will not be any affect on this particular sector. The downgrading is related to the credit policies. Indian Information Technology (IT) and Business Process Outsourcing (BPO) sector will be affected if there is any economic slowdown, which will result in a bad impact on the export system in the sector.

According to some other sources, possibilities are there for low profit in the IT and BPO sector for some period of time. Some companies which have an indirect trading relation with the US public sector may also be affected. And more over if the US banks decides to cut in budget then the export in the industry will have a definite impact. 

Apart from the IT and BPO sector, the depreciation of dollar will also have worst impact on the export industries such as garments and jewelries.

It is obvious that the downgrading of the United States will have an impact on the Indian economy as a whole. But the experts are of the opinion that Information Technology (IT) and the Business Process Outsourcing (BPO) sector is safe at this point of time apart from some small ups and downs especially in investments and profits. 

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