Tough Q1 for Indian Outsourcing Firms

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Several of India's largest outsourcing providers weathered a tough first quarter, having been hit by an unfortunate blend of market forces, notably the dollar's weakness against the rupee and continued wage inflation.


While the country's IT services and software sector is on target to bring in revenues of $50 billion in 2007-08, according to Asia Times Online, net profits are being squeezed by the strong rupee -- not a surprise, since the U.S. accounts for 60 percent of the Indian software sector's revenues.


Infosys Technologies, for example, suffered a 3.5 percent dent in its operating margins due to a stronger rupee -- which has appreciated 9 percent against the U.S. dollar since the beginning of 2007. Margins were also negatively affected by a 13 percent to 15 percent rise in offshore wages and a 5 percent to 6 percent increase in on-site salaries. All told, Infosys' net profit was down 8.5 percent from the previous quarter.


Financial analysts expect a similarly lackluster performance from Wipro, reports Forbes.


One Indian firm that has seemingly bucked the trend is Tata Consultancy Services, which managed to overcome the appreciating rupee by winning 54 new clients in the quarter, including six with contracts valued at more than $100 million, according to CIO Today.


Tata's CEO says the company charges 3 percent to 5 percent more for its services in new deals. He also credits new business in Europe and Asia with helping his company's strong performance.


It's a safe bet that all of India's outsourcing firms will likely step up their activities in Europe, where demand for outsourcing is far outpacing current demand in the U.S.