The Hindu Business Line : Wachovia impact: IT vendors on ‘wait-and-watch’ mode

Bangalore/New Delhi, Sept. 29 There’s more trouble brewing for the Indian IT and BPO vendors as Wachovia Corp, the sixth largest bank in the US, becomes the latest victim of the financial turmoil. Citigroup is acquiring Wachovia for $2.1 billion in stock and will assume another $53 billion in debt.

Vendors such as Infosys Technologies Ltd, Genpact and Cognizant Technology Solutions Corp have been working with Wachovia since 2005. Wachovia ranks among the top five clients for Genpact and among top 20 for Infosys. Both Genpact and Infosys are working with Citigroup as well.

Infosys and Cognizant did not comment on the development. However, Mr Pramod Bhasin, President and CEO of Genpact, said it was too early to comment on the implications. “We will wait-and-watch and continue to do business as we normally do,” Mr Bhasin said.

Analysts said there will be no major impact till the integration is done. “Unlike the direct impact of Lehman Brothers, the effect of this deal will be a couple of quarters away for the Indian vendors,” said Mr S. Sabyasachi, research director at neoIT, an offshore advisory firm.

“Volumes are unlikely to drop in the next two to three quarters but new projects, which are more discretionary in nature, could get hurt,” Mr Sabyasachi said.

The future of Wachovia’s engagement with Indian vendors will be driven by Citi’s outsourcing strategy.

However, Mr Sudin Apte, analyst and India head of Forrester Inc, said the current turmoil would see a 15-20 per cent reduction in IT budgets of financial institutions over the next two to three years.

This reduction will be mainly driven by the consolidation and liquidation of several entities in the sector.

Indian IT vendors earn over a third of their revenues from the banking and financial services sector. As the financial crisis claims new victims, the impact could prolong for the Indian vendors who are already facing a slowing business as customers continue to delay or postpone their spending on deploying new technology applications.

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