'Wait and See' Turns to 'Wait and Worry' for Indian Services Companies

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It's been slightly less than a month since I last wrote about Indian outsourcing companies' heavy exposure to U.S. financial institutions and how it could impact the service providers' business. Several Indian publications characterized the prevailing mood as one of "wait and see."


Now following an even more dramatic downturn in global financial markets, it's starting to look more like "wait and worry."


Infosys, India's second-largest services provider, managed to beat earnings estimates in its fiscal second quarter ended Sept. 3o, with net income rising 30 percent to hit 14.3 billion rupees ($297 million). However, the company scaled back its earnings forecasts for the year from $2.32 a share to $2.24 a share, reports Bloomberg. It now expects annual revenues in the $4.72 billion to $4.81 billion range, less than the previously projected $4.97 billion to $5.05 billion.


Infosys isn't the only Indian outsourcing specialist feeling the financial pain. Goldman Sachs Group earlier this week cut its investment ratings on Tata Consultancy Services (TCS), Satyam Computer Services and Wipro as its analysts became more pessimistic about India's IT services industry.


Infosys also dropped its 407 million (U.S. $753 million) bid for UK services provider Axon, clearing the way for competitor HCL Technologies to acquire Axon for 440 million (U.S. $766 million). Though HCL CEO Vineet Nayar says the purchase will be a "transformational" one for his company, many observers think the price it's paying is too high. The Economic Times references steep sales declines of SAP software, which is Axon's specialty, and the broader economic troubles.


Despite the worsening economy, both Infosys and TCS continue to add new employees at a rapid clip, reports The Economic Times. TCS will gain some 12,500 employees with its acquisition of Citigroup's BPO business, and Infosys says it still intends to hire 25,000 workers in fiscal 2009 following the addition of 30,000 employees in 2008. Says Infosys COO S D Shibulal:

We don't go back on any of our client contracts, why should we go back on our employment contracts? We have recruited the best and the brightest from colleges -- we will need them when the market recovers. In any case, the training will take 4-5 months.

Based on its earnings guidance, Infosys appears to be predicting a financial turnaround in the latter part of fiscal 2009.