The Bombay Stock Exchange benchmark Sensex is trading higher by over 80 points in the morning session today on emergence of fresh spell of buying in realty, capital goods, bank and healthcare stocks amid a firming trend in other Asian bourses.
At 9.45 a.m., the Sensex was up 88.31 points or 0.48 per cent at 18,354.34 and the Nifty up 30.3 points or 0.55 per cent at 5,513.10.
During the opening session, the 30-share BSE index Sensex, which has lost over 228 points in the previous four sessions, recovered by 84.37 points or 0.45 per cent to 18,350.40.
Similarly, the wide-based National Stock Exchange Nifty index regained the 5,500 points level by rising 27.20 points or 0.46 per cent to 5,510.00.
Meanwhile in other Asian markets, Japan’s Nikkei index was trading 0.16 per cent higher, while Hong Kong’s Hang Seng Index rose 0.27 per cent in the early trade today. The US Dow Jones Industrial Average ended 0.01 per cent higher on Monday.
Monday, June 13, 2011
Markets post modest gains, eye on inflation
Markets opened marginally higher following modest gains across Asia and short covering. The The S&P CNX Nifty was up 20 points, at 5,503 and the benchmark Sensex gained 62 points, at 18,327.
Derivative Analyst Shshank Mehta said that long positions were formed in the Nifty future yesterday which has led to the positive opening along with firm cues from Asia. Markets may remain volatile ahead of the May inflation data which will be out at noon today. Reuter’s poll expects Whole Sale Price Index at around 8.6% which may prompt the Reserve Bank of India to continue with its rate hike of around 25 bps later this week.
Ashish Chaturmohta, Vice President - Derivatives and Technical Analyst from IIFL wealth said, if Nifty sustains above 5440 levels with volume support we may see some pullback, whereas on the downside, a close below 5400 levels would be crucial for the market.
Markets across Asia also posted modest gains in the morning session. China’s Whole Sale Price Index was reported in line with expectations around 5.5% for May compared to 5.3% in April. Shanghai Composite advanced 0.9% and Hong Kong’s Hang Seng gained 0.3%. Japan’s Nikkei Stock Average was up 0.2%.
Among individual stocks HDFC fell 0.7% after Citigroup reduced stake in the company from 11.4% to 11%. Idea Cellular advanced 1.7% after it reported net profit of Rs 274 crore in the fourth quarter as against Rs 266.61 last year.
Rate Sensitive auto shares were leading the losses in the mornign session, the BSE Auto index was down 0.1%. Tata Motors declined 1.6%, Maruti Suzuki fell 0.8% and Ashok Leyland was off 0.2%.
BSE Realty shares were leading the gains, up 1%. HDIL climbed 1.6%, DLF was up 1.5% and Ackruti City added 1.4%.
From the broader markets, the midcap and the smallcap indices were up 0.5% each.
Among the Sensex stocks, DLF gained 1.5%, ICICI Bank gained 0.9% and Larsen & Tourbo was also up 0.9%. Top losers on the Sensex were Tata Motors, down 1.6%, HDFC fell 0.9% and Maruti declined 0.8%.
Market breadth was positive, 972 stocks advanced for 347 stocks which advanced.
Derivative Analyst Shshank Mehta said that long positions were formed in the Nifty future yesterday which has led to the positive opening along with firm cues from Asia. Markets may remain volatile ahead of the May inflation data which will be out at noon today. Reuter’s poll expects Whole Sale Price Index at around 8.6% which may prompt the Reserve Bank of India to continue with its rate hike of around 25 bps later this week.
Ashish Chaturmohta, Vice President - Derivatives and Technical Analyst from IIFL wealth said, if Nifty sustains above 5440 levels with volume support we may see some pullback, whereas on the downside, a close below 5400 levels would be crucial for the market.
Markets across Asia also posted modest gains in the morning session. China’s Whole Sale Price Index was reported in line with expectations around 5.5% for May compared to 5.3% in April. Shanghai Composite advanced 0.9% and Hong Kong’s Hang Seng gained 0.3%. Japan’s Nikkei Stock Average was up 0.2%.
Among individual stocks HDFC fell 0.7% after Citigroup reduced stake in the company from 11.4% to 11%. Idea Cellular advanced 1.7% after it reported net profit of Rs 274 crore in the fourth quarter as against Rs 266.61 last year.
Rate Sensitive auto shares were leading the losses in the mornign session, the BSE Auto index was down 0.1%. Tata Motors declined 1.6%, Maruti Suzuki fell 0.8% and Ashok Leyland was off 0.2%.
BSE Realty shares were leading the gains, up 1%. HDIL climbed 1.6%, DLF was up 1.5% and Ackruti City added 1.4%.
From the broader markets, the midcap and the smallcap indices were up 0.5% each.
Among the Sensex stocks, DLF gained 1.5%, ICICI Bank gained 0.9% and Larsen & Tourbo was also up 0.9%. Top losers on the Sensex were Tata Motors, down 1.6%, HDFC fell 0.9% and Maruti declined 0.8%.
Market breadth was positive, 972 stocks advanced for 347 stocks which advanced.
MSF debut: Banks borrowed Rs 100 cr on Friday
Banks on Friday used the Reserve Bank of India's (RBI) marginal standing facility (MSF) for the first time since its inception in May. According to data released by the central bank on Monday, banks borrowed Rs 100 crore for three-day loans through the facility.
To borrow funds through this window, banks have to pay interest at a rate 100 bps higher than the repo rate, which currently stands at 7.25 per cent. Banks are allowed to use MSF only after exhausting the excess statutory liquidity ratio (SLR), which stands at 24 per cent of their net demand and time liabilities. Banks keep excess SLR to pledge securities for funds from the central bank or the overnight market to meet their product needs. In May, MSF had replaced the second liquidity adjustment facility (LAF).
Though RBI did not publish the names of banks that used MSF, according to market players, a few small private sector banks facing a liquidity crunch may have used the facility. “The amount borrowed was very low compared to the LAF borrowing on Friday. Maybe one or two small banks have used the window to sail over short-term needs,” said a treasury head of a large public sector bank. On Friday, banks borrowed around Rs 75,000 crore through the LAF window at 7.25 per cent.
Interestingly, though the call money rate, at 7.30-7.40 per cent, was stable last week, banks opted for MSF funds instead of the call market route. When MSF was announced, RBI had said it expected banks to exhaust all other sources before taking this route.
“Every bank has an internal limit set for borrowing from the call money market. Exhaustion of that limit would have forced a bank to approach RBI's marginal standing facility. Also, while lending call money, factors like the borrowing bank’s net worth, its market standing and its past experience in repaying the debt play major roles, since borrowing in call is non-collateralised,” said Pawan Bajaj, deputy general manager, Bank of India.
Liquidity is expected to remain tight due to the advance tax outflow scheduled later this week. Banks expect Rs 25,000 crore to Rs 30,000 crore to go out of the system owing to the tax outflow. RBI had earlier said the MSF would be tested when the tax outflow takes place.
“Every quarter, it (advance tax) happens. I don't think there is anything different in that. A new type of liquidity management facility has come, so it would be tested,” RBI Deputy Governor K C Chakrabarty had said in the beginning of June.
To borrow funds through this window, banks have to pay interest at a rate 100 bps higher than the repo rate, which currently stands at 7.25 per cent. Banks are allowed to use MSF only after exhausting the excess statutory liquidity ratio (SLR), which stands at 24 per cent of their net demand and time liabilities. Banks keep excess SLR to pledge securities for funds from the central bank or the overnight market to meet their product needs. In May, MSF had replaced the second liquidity adjustment facility (LAF).
Though RBI did not publish the names of banks that used MSF, according to market players, a few small private sector banks facing a liquidity crunch may have used the facility. “The amount borrowed was very low compared to the LAF borrowing on Friday. Maybe one or two small banks have used the window to sail over short-term needs,” said a treasury head of a large public sector bank. On Friday, banks borrowed around Rs 75,000 crore through the LAF window at 7.25 per cent.
Interestingly, though the call money rate, at 7.30-7.40 per cent, was stable last week, banks opted for MSF funds instead of the call market route. When MSF was announced, RBI had said it expected banks to exhaust all other sources before taking this route.
“Every bank has an internal limit set for borrowing from the call money market. Exhaustion of that limit would have forced a bank to approach RBI's marginal standing facility. Also, while lending call money, factors like the borrowing bank’s net worth, its market standing and its past experience in repaying the debt play major roles, since borrowing in call is non-collateralised,” said Pawan Bajaj, deputy general manager, Bank of India.
Liquidity is expected to remain tight due to the advance tax outflow scheduled later this week. Banks expect Rs 25,000 crore to Rs 30,000 crore to go out of the system owing to the tax outflow. RBI had earlier said the MSF would be tested when the tax outflow takes place.
“Every quarter, it (advance tax) happens. I don't think there is anything different in that. A new type of liquidity management facility has come, so it would be tested,” RBI Deputy Governor K C Chakrabarty had said in the beginning of June.
Online options for filing returns
A government portal offers the facility free of charge, there are private options too.
With online tax filing catching on over the past couple of years, a number of private websites are offering these services.
The Central Board of Direct Taxes (CBDT) has also has been encouraging people to do so. Sudhir Chandra, chairman, CBDT, recently said, “Filing electronic income tax returns will help you verify your deduction of tax at source on screen and it will also help process your refund speedily, in less than one month.”
Obviously, private players see this space as an opportunity. There is a government website, www.incometaxindia.gov.in, where one can file returns free of cost. Some of the private portals providing e-filing help are Taxsmile.com, Taxsum.com, Taxspanner.com, Myitreturn.com and Taxshax.com. These help you file by making you fill some basic forms and asking questions about your income and investments.
On completing these forms, your income and tax statement will automatically be computed. Any queries one may have can be emailed or you can be asked to chat with tax experts. There is also pop up-guidance, video demos and telephonic help.
Also, features such as filing part of your form at one time and continuing the rest of the process as and when you want to make these products more user-friendly. The portals also have an edge over desktop income tax filing software in convenience (in terms of not being bound to use one computer only to file).
OTHER PLUSES
The cost, though higher than the government site, is cheaper than hiring chartered accountants. Sanjay Kapadiaa, Chairman, SNK ETax Solutions (TaxSum), says: “Online portals are a lot cheaper than going to a professional chartered accountant, and the extra cost charged on added benefits like selling digital signatures is not much. We charge Rs 140 for a six-month digital signature accessible straight off the net, as compared to pendrive signatures which cost Rs 600-800.” In comparison, a chartered accountant would charge in excess of Rs 500 for filing returns.
There are other advantages as well. Filing returns online is a convenient way of filing returns from anywhere. The portals offering such options all seem high on security measures to protect one’s information. And, the entire filing process is a lot faster online, enabling one to know how much tax they need to pay or receive.
Getting back refunds is a lot faster with e-filing, while your taxation amount, too, can be paid off easily using debit/credit cards.
One of the portal owners said: “People, by and large, are more worried about their returns and refunds. This is made easier in e-filing, for one can track the return online through the income tax department web links and this centralisation has made getting refunds faster.”
For those who have yet to begin filing any return because of the cumbersome process, starting through e-filing would be a good option. I-T returns act as a customary income proof and help you get a good credit history, if you wish to pursue working or studying abroad. In fact, even visa applications for short holidays abroad, getting a loan or higher insurance policy or getting a solvency certificate is a lot easier if one files tax returns.
With online tax filing catching on over the past couple of years, a number of private websites are offering these services.
The Central Board of Direct Taxes (CBDT) has also has been encouraging people to do so. Sudhir Chandra, chairman, CBDT, recently said, “Filing electronic income tax returns will help you verify your deduction of tax at source on screen and it will also help process your refund speedily, in less than one month.”
Obviously, private players see this space as an opportunity. There is a government website, www.incometaxindia.gov.in, where one can file returns free of cost. Some of the private portals providing e-filing help are Taxsmile.com, Taxsum.com, Taxspanner.com, Myitreturn.com and Taxshax.com. These help you file by making you fill some basic forms and asking questions about your income and investments.
On completing these forms, your income and tax statement will automatically be computed. Any queries one may have can be emailed or you can be asked to chat with tax experts. There is also pop up-guidance, video demos and telephonic help.
Also, features such as filing part of your form at one time and continuing the rest of the process as and when you want to make these products more user-friendly. The portals also have an edge over desktop income tax filing software in convenience (in terms of not being bound to use one computer only to file).
OTHER PLUSES
The cost, though higher than the government site, is cheaper than hiring chartered accountants. Sanjay Kapadiaa, Chairman, SNK ETax Solutions (TaxSum), says: “Online portals are a lot cheaper than going to a professional chartered accountant, and the extra cost charged on added benefits like selling digital signatures is not much. We charge Rs 140 for a six-month digital signature accessible straight off the net, as compared to pendrive signatures which cost Rs 600-800.” In comparison, a chartered accountant would charge in excess of Rs 500 for filing returns.
There are other advantages as well. Filing returns online is a convenient way of filing returns from anywhere. The portals offering such options all seem high on security measures to protect one’s information. And, the entire filing process is a lot faster online, enabling one to know how much tax they need to pay or receive.
Getting back refunds is a lot faster with e-filing, while your taxation amount, too, can be paid off easily using debit/credit cards.
One of the portal owners said: “People, by and large, are more worried about their returns and refunds. This is made easier in e-filing, for one can track the return online through the income tax department web links and this centralisation has made getting refunds faster.”
For those who have yet to begin filing any return because of the cumbersome process, starting through e-filing would be a good option. I-T returns act as a customary income proof and help you get a good credit history, if you wish to pursue working or studying abroad. In fact, even visa applications for short holidays abroad, getting a loan or higher insurance policy or getting a solvency certificate is a lot easier if one files tax returns.
HDFC falls after 16.5 mn shares change hands
MUMBAI: Shares in India's top mortgage lender, Housing Development Finance Corp , fell as much as 1.8 percent in early deals on Tuesday after 16.5 million shares, or 1.12 percent of equity, changed hands at 643 rupees each on the Bombay Stock Exchange.
Identity of the buyers and sellers were not immediately known.
At 9:25 a.m. (0355 GMT), shares in HDFC were down 0.6 percent at 653 rupees after falling as low as 645.50 in firm Mumbai market .
On Monday, two sources with knowledge of the matter had said Citigroup had decided to reduce its stake in HDFC to about 10 percent from 11.4 percent via stock market deals.
Identity of the buyers and sellers were not immediately known.
At 9:25 a.m. (0355 GMT), shares in HDFC were down 0.6 percent at 653 rupees after falling as low as 645.50 in firm Mumbai market .
On Monday, two sources with knowledge of the matter had said Citigroup had decided to reduce its stake in HDFC to about 10 percent from 11.4 percent via stock market deals.
Govt committed to curb black money menace: Pranab
NEW DELHI: Competition among tax havens had created an unhealthy situation, helping individuals to park substantial undisclosed income outside their countries, denying government's legitimate revenues, finance minister Pranab Mukherjee said on Monday. The government was committed to vigorously pursue all necessary steps to curb the menace, he added.
The UPA government has been on the back foot over the issue of black money and has been criticised for its failure to bring back money stashed in foreign countries. The government has taken several steps to blunt the attacks which has seen civil society members taking to the streets. Mukherjee said there was a considered view that tax havens and low tax jurisdictions were important actors in the global financial crisis. The opaque system in these jurisdictions and restrictions on exchange of information in these tax havens and their non-compliant behaviour was a matter of serious concern, he said. "The concerns are not only on account of protecting revenue base but also linked to financing of activities which are detrimental to national security interest." He said the government was in the process of negotiating exchange of information agreements with tax, no tax or low tax countries.
The finance minister said India had also initiated process of re-negotiation with 65 countries to broaden the scope of provisions governing exchange of banking information and information without domestic interest. The government had finalized 14 Tax Exchange Information Agreements (TEIAs) and completed negotiations/renegotiations of Double Taxation Avoidance Agreements (DTAAs) with 36 countries in the last financial year.
"While countries have accepted to end bank secrecy in general, some countries have agreed to do so only from prospective date and are not willing to exchange past banking information," Mukherjee said, while addressing a tax conference organised by the Paris-based OECD — a group of 34 industrialised nations. "India is... suffering from the fact that some of its citizens are using some countries to put their money to avoid paying tax," OECD secretary general Angel Gurria said at the conference.
The OECD and India announced plans to strengthen ongoing cooperation on tax related issues through the development of a three-year partnership that will provide greater opportunities for dialogue and sharing of information. The finance minister said the Global Plan for Recovery and Reform, the statement of G20 leaders in London issued in April 2009, had called for action against non-cooperative jurisdictions, including tax havens.
"However, the spirit of this statement has not been respected. We cannot say with certainty that bank secrecy is over in all cases. While the countries have accepted to end bank secrecy in general, some countries have agreed to do so only from prospective date and are not willing to exchange past banking information. This puts a question mark on the efficacy of present legal provisions for exchange of banking information. There is an urgent need to revisit existing legal framework developed by OECD in this regard," the minister said.
The UPA government has been on the back foot over the issue of black money and has been criticised for its failure to bring back money stashed in foreign countries. The government has taken several steps to blunt the attacks which has seen civil society members taking to the streets. Mukherjee said there was a considered view that tax havens and low tax jurisdictions were important actors in the global financial crisis. The opaque system in these jurisdictions and restrictions on exchange of information in these tax havens and their non-compliant behaviour was a matter of serious concern, he said. "The concerns are not only on account of protecting revenue base but also linked to financing of activities which are detrimental to national security interest." He said the government was in the process of negotiating exchange of information agreements with tax, no tax or low tax countries.
The finance minister said India had also initiated process of re-negotiation with 65 countries to broaden the scope of provisions governing exchange of banking information and information without domestic interest. The government had finalized 14 Tax Exchange Information Agreements (TEIAs) and completed negotiations/renegotiations of Double Taxation Avoidance Agreements (DTAAs) with 36 countries in the last financial year.
"While countries have accepted to end bank secrecy in general, some countries have agreed to do so only from prospective date and are not willing to exchange past banking information," Mukherjee said, while addressing a tax conference organised by the Paris-based OECD — a group of 34 industrialised nations. "India is... suffering from the fact that some of its citizens are using some countries to put their money to avoid paying tax," OECD secretary general Angel Gurria said at the conference.
The OECD and India announced plans to strengthen ongoing cooperation on tax related issues through the development of a three-year partnership that will provide greater opportunities for dialogue and sharing of information. The finance minister said the Global Plan for Recovery and Reform, the statement of G20 leaders in London issued in April 2009, had called for action against non-cooperative jurisdictions, including tax havens.
"However, the spirit of this statement has not been respected. We cannot say with certainty that bank secrecy is over in all cases. While the countries have accepted to end bank secrecy in general, some countries have agreed to do so only from prospective date and are not willing to exchange past banking information. This puts a question mark on the efficacy of present legal provisions for exchange of banking information. There is an urgent need to revisit existing legal framework developed by OECD in this regard," the minister said.
Sunday, June 12, 2011
Indian IT outsourcers face fresh challenges
By Mary Watkins and James Fontanella-Khan
Published: June 12 2011 22:15 | Last updated: June 12 2011 22:15
Som Mittal is in an optimistic mood. This year, he expects India’s IT outsourcing companies, for so long the darlings of the country’s stock market, to deliver double-digit growth as heavyweights such as Infosys, Wipro and Tata Consultancy Services bounce back from the financial crisis.
Nasscom, the IT outsourcing industry body that Mr Mittal heads, is forecasting that revenues from the sector will rise at least 15 per cent to about $70bn this year as banking and corporate customers in the US and Europe resume spending following a slowdown in growth during the global economic downturn.
But Mr Mittal admits that India’s traditional IT outsourcing model is experiencing a fundamental shift as it adapts to the post-economic crisis environment. “We’ve now moved to an outcome-based model” – being paid on performance, rather than one based solely on the number of people deployed on any one job, he says. “That is giving outsourcers an incentive to be more efficient.”
Analysts put it more bluntly, saying that India’s IT sector has reached maturity and, while revenues are still growing, margins are being squeezed.
Milan Seth, a partner and technology analyst at Ernst & Young in India, describes the global financial crisis as a “game changer” for many IT outsourcing companies. Customers are now looking for more tailor-made and innovative solutions.
But analysts say companies such as Wipro and Infosys have been slower to respond to their clients’ shifting demands.
Shares in Infosys, for example, dropped 10 per cent in April when the country’s second-largest IT outsourcer delivered full-year results and forecasts below expectations. Meanwhile, Wipro saw 6 per cent revenue growth in 2010 compared with 24.3 per cent for TCS and 40 per cent growth for rival Cognizant, another smaller competitor.
Sudin Apte, chief executive of IT research company Offshore Insight, says US-listed Cognizant has performed well coming out of the crisis because it shifted away from only offering cheaper back-office functions and has instead offered innovative solutions that have an impact on the companies’ overall performance.
“It’s not only about cutting costs, it [is] about creating tangible value,” says Mr Apte. “The days of vanilla [basic] outsourcing are over. Indian companies need to become more like the IBMs, Accentures and Capgeminis of the world if they want to survive.”
Malcolm Frank, chief strategist at Cognizant, says customers no longer want simply an existing function delivered at a cheaper price but are also looking to restructure their business and take advantage of new technological shifts – such as the move to cloud computing and mobile working.
Overseas groups are also encroaching on the Indian outsourcers’ home turf.
IBM is a market leader in domestic IT services in India, holding a 10–15 per cent market share, according to Forrester Research. Meanwhile, Capgemini’s business grew 24 per cent last year in India, higher than most of its Indian rivals, generating $4bn in revenues.
Such threats to the traditional model come as Indian IT outsourcers face other challenges.
The US recently raised the cost of applying for business visas used by Indian outsourcers to send their employees to overseas locations from $320 to $2,000 amid calls from politicians to protect US jobs.
Mr Mittal says the rise in visa costs is unlikely to have a big impact on the industry. But he admits that Nasscom’s members are concerned that the “political rhetoric” could be converted into more serious action.
Indian companies point out that they already have operations in the US, staffed by local people, which helps to counter claims of protectionism. Others are opening offices in Latin America that are able to serve clients in a similar timezone without the same visa restrictions.
Meanwhile, analysts say that above-average wage rises in India’s IT outsourcing industry could become a concern. Arup Roy, a principal analyst at consultancy Gartner, says wages have risen about 15 per cent a year.
Mr Roy says that for many international companies, the key reason to outsource some technology functions to India is price. But he says that, while India still remains a low-cost destination, that advantage is “depleting with every passing year”.
Indian IT outsourcers are still expected to see a 10 to 15 per cent rise in quarter-on-quarter growth, he says. “The problem is that investors have got used to growth of 20-25 per cent. Investors will have to reset their expectations.”
Copyright The Financial Times Limited 2011. Print a single copy of this article for personal use. Contact us if you wish to print more to distribute to others.
"FT" and "Financial Times" are trademarks of the Financial Times. Privacy policy | Terms
© Copyright The Financial Times Ltd 2011.
Published: June 12 2011 22:15 | Last updated: June 12 2011 22:15
Som Mittal is in an optimistic mood. This year, he expects India’s IT outsourcing companies, for so long the darlings of the country’s stock market, to deliver double-digit growth as heavyweights such as Infosys, Wipro and Tata Consultancy Services bounce back from the financial crisis.
Nasscom, the IT outsourcing industry body that Mr Mittal heads, is forecasting that revenues from the sector will rise at least 15 per cent to about $70bn this year as banking and corporate customers in the US and Europe resume spending following a slowdown in growth during the global economic downturn.
But Mr Mittal admits that India’s traditional IT outsourcing model is experiencing a fundamental shift as it adapts to the post-economic crisis environment. “We’ve now moved to an outcome-based model” – being paid on performance, rather than one based solely on the number of people deployed on any one job, he says. “That is giving outsourcers an incentive to be more efficient.”
Analysts put it more bluntly, saying that India’s IT sector has reached maturity and, while revenues are still growing, margins are being squeezed.
Milan Seth, a partner and technology analyst at Ernst & Young in India, describes the global financial crisis as a “game changer” for many IT outsourcing companies. Customers are now looking for more tailor-made and innovative solutions.
But analysts say companies such as Wipro and Infosys have been slower to respond to their clients’ shifting demands.
Shares in Infosys, for example, dropped 10 per cent in April when the country’s second-largest IT outsourcer delivered full-year results and forecasts below expectations. Meanwhile, Wipro saw 6 per cent revenue growth in 2010 compared with 24.3 per cent for TCS and 40 per cent growth for rival Cognizant, another smaller competitor.
Sudin Apte, chief executive of IT research company Offshore Insight, says US-listed Cognizant has performed well coming out of the crisis because it shifted away from only offering cheaper back-office functions and has instead offered innovative solutions that have an impact on the companies’ overall performance.
“It’s not only about cutting costs, it [is] about creating tangible value,” says Mr Apte. “The days of vanilla [basic] outsourcing are over. Indian companies need to become more like the IBMs, Accentures and Capgeminis of the world if they want to survive.”
Malcolm Frank, chief strategist at Cognizant, says customers no longer want simply an existing function delivered at a cheaper price but are also looking to restructure their business and take advantage of new technological shifts – such as the move to cloud computing and mobile working.
Overseas groups are also encroaching on the Indian outsourcers’ home turf.
IBM is a market leader in domestic IT services in India, holding a 10–15 per cent market share, according to Forrester Research. Meanwhile, Capgemini’s business grew 24 per cent last year in India, higher than most of its Indian rivals, generating $4bn in revenues.
Such threats to the traditional model come as Indian IT outsourcers face other challenges.
The US recently raised the cost of applying for business visas used by Indian outsourcers to send their employees to overseas locations from $320 to $2,000 amid calls from politicians to protect US jobs.
Mr Mittal says the rise in visa costs is unlikely to have a big impact on the industry. But he admits that Nasscom’s members are concerned that the “political rhetoric” could be converted into more serious action.
Indian companies point out that they already have operations in the US, staffed by local people, which helps to counter claims of protectionism. Others are opening offices in Latin America that are able to serve clients in a similar timezone without the same visa restrictions.
Meanwhile, analysts say that above-average wage rises in India’s IT outsourcing industry could become a concern. Arup Roy, a principal analyst at consultancy Gartner, says wages have risen about 15 per cent a year.
Mr Roy says that for many international companies, the key reason to outsource some technology functions to India is price. But he says that, while India still remains a low-cost destination, that advantage is “depleting with every passing year”.
Indian IT outsourcers are still expected to see a 10 to 15 per cent rise in quarter-on-quarter growth, he says. “The problem is that investors have got used to growth of 20-25 per cent. Investors will have to reset their expectations.”
Copyright The Financial Times Limited 2011. Print a single copy of this article for personal use. Contact us if you wish to print more to distribute to others.
"FT" and "Financial Times" are trademarks of the Financial Times. Privacy policy | Terms
© Copyright The Financial Times Ltd 2011.
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