IT firms not to be affected by looming US credit turmoil

BANGALORE: The turbulence in the US financial services sector, hit by billions of dollars in losses owing to subprime and mortgage crisis, has not affected the fortunes of the Indian IT services biggies, at least for now. The BFSI segment has traditionally been the highest spenders on technology and it also accounts for significant portion of the revenues of India based IT services providers like TCS, Infosys, Wipro, Satyam, HCL and Cognizant.

For India based IT services majors, the latest quarterly results show that BFSI segment has recorded a very positive growth rate on a sequential basis, for some, in fact it has been higher than the company’s overall growth rate. Analysts felt they would be able to maintain the current growth rate even during the current quarter.
In the case of Infosys, the BFSI segment recorded 7% sequential growth while for Wipro Technologies, it was 9.8%. TCS CEO S Ramadorai said, “BFSI continues to be strong and it has grown above the company rate sequentially.” The BFSI segment accounted for 44% of TCS revenues during the third quarter.
However, the big question is whether, these IT biggies would be able to maintain this growth rate given the background of a likely slowdown of US economy and the large financial services giants cutting down on their IT budgets to cut costs.

Offshore advisory firm, Tholons CEO Avinash Vashistha felt that the worst of subprime crisis is over for the Indian IT services majors and they are likely to maintain the current growth rate, if not higher, from the BFSI segment. In case of Cognizant, the BFSI segment accounted for 47% of its revenue and it grew 7% sequentially.

According to its survey among its BFSI segment on the IT budget growth in 2008, 90% did not expect their outsourcing budgets to decline. According to Siddharth Pai of TPI India, it is very unlikely that there will be any change in the current growth rates in the BFSI segment as the compulsory IT spending will continue though there might be bit of an impact on the new projects.

The IT biggies felt that BFSI segment under pressure to cut costs will actually look forward towards increased spending on technology to deliver the benefits.

Infosys senior VP and head Ashok Vemuri said, “Challenges that they are facing are creating more opportunities and this will actually see an increase in the overall spend.” Though, Girish Paranjape, president, financial solutions, Wipro Technologies felt that a clear picture will emerge only in the later part of this year on the actual spending pattern in the BFSI segment.

500 TCS employees asked to leave

Mumbai: India’s leading software services firm Tata Consultancy Services Ltd (TCS) said on Tuesday that about 500 of its employees were asked to look for another job after their performance was rated poorly.”Those who cannot meet the performance requirements of our company were asked to look for another job commensurate with their abilities,” TCS spokesman Pradipta Bagchi said here.In the quarter ending on December 31, TCS appointed 4,037 employees, taking its total headcount to 108,229, up from 83,500 a year ago.

The export-driven software services companies have been winning large outsourcing contracts from western clients, but recession fears in the US and a rising rupee against the dollar has considerably affected their profit margins in the recent past.

IBM dismisses 700 freshers in India

KOLKATA: This may literally be a bolt from Big Blue! IBM is learnt to have delivered the pink slip to a sizeable chunk of its entry-level trainee programmers (ELTPs) across major offices in India.

Most of these ELTPs, who were engineering graduates, had put in nearly a year and were working in numerous technology practice groups under IBM India’s global delivery business.

Though IBM is silent on the actual number of ELTPs dismissed, the total is likely to be in excess of 700 across company locations nationally, including 180-odd in Kolkata alone.

ELTPs, who were essentially freshers, were asked to go based on their performance in aptitude tests that were recently conducted in undisclosed IBM India locations. It is learnt that action on the ELTP front in major IBM locations was an ultra hush-hush exercise about which many senior IBM managers were in the dark.

At present, the IBM India management is reluctant to go into the details of its latest HR exercise. But in a written response to ET’s email query, an IBM spokesperson said, “IBM is driven by a high-performance culture, a place where employees are able to contribute at the upper limits of their potential and continually build market-valued skills and capabilities in both formal training and experiential learning. In support of that expectation on the part of our workforce, we are pioneering new ways for our people to certify their skill levels as both a validation of their value to clients and to reinforce the quality of our employees’ personal skill sets.”

IBM has strongly refuted any possible link in the latest action on the ELTP front, with industry speculation about IBM’s global services business suffering a cash loss in India in 2007.

–Kalyan Parbat & Sutanuka Ghosal, TNN

Wipro scotches CapGemini buyout rumours

BANGALORE: Wipro came out very strongly against the news doing the rounds that it was looking at acquiring European IT services giants CapGemini. At the announcement of third quarter results here on Friday, Wipro chairman Azim Premji said, “You have seen the whole ‘nonsense’ about Capgemini which went on and on and finally we had to issue a statement, which we never do.”

There was enough news emanating in the recent past about both Wipro and Infosys looking at the possibility of acquiring the European major. There were even talks about the possibility of Wipro looking at acquiring a part of Capgemini, which is more strategic to them.

On its part, Wipro in a notice to the stock exchanges recently said, “Wipro, on behalf of all Companies in the Wipro group, including Wipro Technologies, its global IT services Division, at the request of French Securities Regulatory Autority Autorite des marches financiers (AMF) confirm that they have not recently been, and are not in discussions with and / or in relation to Cap Gemini, the French Euronext listed group, on merger / takeover of Cap Gemini.” Analysts were highly sceptical of either Wipro or Infosys acquiring Capgemini as there would be no financial or growth synergies.

Indian IT immune to US slowdown: Wipro

DAVOS: Worries over the impact of a US slowdown on India’s software services sector are exaggerated and Wipro’s clients are showing no signs of reducing outsourcing, its top official said.I don’t think it’s a situation of gloom for the industry. I think it’s a situation of cautiousness for the industry,” Azim Premji, chairman of India’s third-largest software services exporter said in an interview.

“Don’t get carried away. Run a tight ship. Have realistic expectations,” Premji said during the annual meeting of the World Economic Forum in the Swiss resort of Davos.
Earlier this month, New York-listed Wipro reported a lower-than-expected 11 per cent rise in quarterly profit, its slowest growth in four years and said higher billing rates should help offset rising costs from wage hikes and a firm local currency.

Bangalore-based Wipro counts Cisco, Nortel and Credit Suisse among its clients. Premji said Wipro’s customers in the banking and financial services industry, hit by the subprime worries and wobbly market, were likely to drive global outsourcing even more aggressively in an uncertain economic environment.

“Trying do drive more offshore work on IT is one fairly effective methodology of cost takeouts without much risk because they are used to it, they are used to their partners, they are familiar with the system.”

“We are sitting pretty. I think global delivery companies such as ours will be the last affected,” Premji said, echoing similar comments made by other leading Indian software firms.

The banking and financial services industry accounts for about 25 per cent of Wipro’s total IT revenue. Wipro, a diversified firm with interests in computer hardware and consumer goods, is majority-owned by Premji.

Shares in Indian IT firms were among the worst performers in a booming local market last year, hurt by concerns over the impact of a slowdown in the US, rising local wages and an appreciating currency.

“I think there is an undue pessimism viz-a-viz the IT sector and I think it will correct itself sooner than later,” Premi said.

Party over, IT sector in for big pay cut

Mumbai: It may be the end of good times for software professionals. Fat salary hikes in the IT industry may soon be a thing of the past. That is because IT companies have realised they need to cut costs in their biggest money drainer – the salaries. The IT industry’s largest employer, TCS, says that wage inflation has peaked.

“What we are experiencing this year is a stability in wages. Last year, we had a 12 per cent –15 per cent increase in wages and my own expectation is that this year the wages will increase 10 per cent –12 per cent,” said S Padmanabhan, ED and Head-HR, TCS.

That is a view seconded by Wipro, which sees wage inflation moderating at 12 per cent-13 per cent.

Infosys, however, sees wage inflation at 12 per cent –15 per cent. Salary increments offered in the first quarter this year, reflected in the margins of TCS and Satyam, in the form of an impact on their second quarter margins by 117 basis points and 450 basis points respectively.

Infosys, which offered salary hikes in April last year, saw margins in its first quarter impacted by 250 basis points. One look at the wage hikes, in the past five years, clearly show wage inflation moderating if not declining.

Industry experts say IT margins are impacted primarily by wage inflation and appreciation of the rupee. While the sting of the rupee is being countered by forex hedging, salary hikes are also being tempered.

However, some job skills may continue to carry a premium.

“In certain niche market or skill set, you can have a demand, which is far more than the supply and there is a premium. In industry parlance, we call it hot skills, and those hot skills demand a premium,” said Aquil Busrai, ED-HR, IBM India.

Instead of offering a salary hike, some IT companies are sending employees to the US or Europe earlier than usual, so that their onsite salaries make up for the lower salary hikes