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Nasscom's $60 billion export target in jeopardy

By Leslie D'Monte & Shivani Shinde in Mumbai
September 19, 2008 02:22 IST
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The unprecedented banking and financial crisis in the US will continue to tell on the revenues and profitability of Indian IT-BPO firms for at least a year.

Some analysts, in fact, opine that software body Nasscom may -- for the first time -- miss its revenue (software exports) target of $60 billion by FY09-10, even as the long-term IT story remains intact.

The short- and mid-term bearish sentiment stems from the fact that the United States and United Kingdom account for almost 80 per cent of the revenues of all Indian IT firms. The crisis is spilling over to the UK too, where Indian IT firms were finding succour by de-risking geographically.

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The banking, financial services and insurance vertical -- which has been affected the most by the sub-prime crisis -- accounts for slightly over 40 per cent of India's software sector revenues.

Avinash Vashistha, chairman and CEO, Tholons, said Nasscom's revenue target of $60 billion by FY10 "seems to be difficult to achieve". The target of $40 billion for FY08 too "appears challenging," he added.

"We do see ramp-ups to begin from Q2FY09, but for the Indian IT firms to manage to get growth rates above 25 per cent will be difficult. For BPOs, the next quarter might see some announcements in terms of change in the guidance," he predicted.

Som Mittal, president, Nasscom, admitted that this week's global crisis will have an impact on the Indian IT industry but added that it's difficult to quantify the exact impact at this point of time.

However, Edelweiss analysts note that the negative segment has hurt other emerging verticals like retail (which accounts for around 8 per cent of revenues) and manufacturing (around 15 per cent), which is being affected in pockets (like automobiles).

Besides, the benefits of a falling rupee would be largely limited since most companies had over-hedged their position (most of it as forward contracts).

Sudin Apte, senior analyst, Forrester Research, said the Indian IT industry's ability to meet prior announced growth goals will be surely tough in the current situation.

There are dissenting views though. Partha Iyengar, vice- president of IT research firm Gartner, said, "Nasscom's predictions are still very doable. After the US elections, the situation will stabilise and IT firms will have a chance to recoup losses and accelerate the growth rate."

However, Monish Chatrath, national markets leader, Grant Thorton, noted that banks and financial institutions will be laying off employees and offshoring to India will have a political backlash in an election year. According to Tholons, banks have become extremely risk-averse and are likely to defer many project starts until 2009.

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Leslie D'Monte & Shivani Shinde in Mumbai
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