The Hindu Business Line : Vendors likely to see stunted growth on Lehman, Merrill woes

“The developments reflect the worsening situation and Indian vendors could see a continued delay in terms of IT spends and decision making process with the US customers.”

Vishwanath Kulkarni

Bangalore Sept. 15 Beleaguered Indian IT vendors are expected to see a stunted growth as banking crisis worsened in the US with Lehman Brothers declaring bankruptcy, while another investment bank Merrill Lynch was in the process of being bought out by Bank of America.

Large vendors Tata Consultancy Services Ltd, Wipro Technologies, Satyam Computers, Infosys Technologies and HCL Technologies are servicing customers such as Lehman and Merrill. The Indian IT industry, already reeling under the impact of US credit crisis as customers hold back their IT spends, earned about a third of its revenues from the financial services sector and latest developments could prolong the impact.

“We can certainly expect more short-term weakness as the financial industry consolidates. The worry is that this weakness may also move to the Euro zone,” said Mr Siddarth Pai, Managing Director of advisory firm TPI’s India operations.

Stocks take a beating

Reflecting the concerns, IT stocks took a beating on the Bombay Stock Exchange that ended 3.35 per cent lower on Monday. Satyam saw the maximum fall of 9.45 per cent to close at Rs 368, while TCS fell 6 per cent to end at Rs 761.80. Infosys fell 4 per cent to end at Rs 1,574, while Wipro ended 4 per cent lower at Rs 402. HCL Technologies closed six per cent lower at Rs 214.75.

Terming the developments as interesting in a challenging environment, Mr V. Balakrishnan, Chief Financial Officer, Infosys, said BoA’s buyout of Merrill was good for the company. “We are on the right side of the transaction,” he said. Infosys has a large relationship with BoA, while it also works with Merrill on a smaller scale.

Satyam has said that it is very concerned about the developments, even while its Chief Financial Officer, Mr Srinivas Vadlamani, clarified in a statement that, “The Lehman Brothers episode will not have any impact on us as they contribute to a very small proportion of our revenues.” However, Satyam did not comment on Merrill Lynch.

TCS officials did not comment on the developments, while a HCL Technologies’ spokesperson said the company did not face any substantial impact. A statement released by Wipro said that Lehman Brothers did not account for a significant portion of the IT major’s revenues but that it is in dialogue with Lehman and is monitoring the US’ economic situation.

“We will not be affected,” said Mr R. Srikanth, Chief Financial Officer, Polaris Software Lab Ltd. “Lehman is a tiny account with just five employees working for them from Polaris,” he added.

“IT spends will be impacted as these FIs consolidate their operations over the next few quarters,” said Mr Avinash Vashistha, CEO of Tholons Inc, an advisory firm. The Indian vendors cumulatively earn about $300 million in annual revenues from Lehman Brothers and Merrill Lynch, Mr Vashistha said adding “Offshoring will take-off once the consolidation is over in the next four to six quarters”.

“The developments reflect the worsening situation and Indian vendors could see a continued delay in terms of IT spends and decision making process with the US customers,” said Mr Harit Shah, an analyst with Angel Broking Ltd.

Industry body Nasscom has projected a slower growth for the Indian IT industry at 25 per cent this fiscal, down from 29 per cent in the previous year. In the June quarter, TCS earned 42 per cent of its revenues from banking, financial services and insurance segment, while Satyam and Wipro earned a little over a fifth of their earnings.

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