'Kerala IT companies closely monitor US economic crisis

The IT companies in Kerala, many of which have huge business interests in the US, are closely monitoring the financial crisis in that country, according to a top industry official. Kerala's joy of crossing the Rs.10 billion ($217.4 million) mark in software exports earlier this year would be short-lived if the US financial sector did not survive the current crisis, V.K. Mathews, chairman and chief executive of IBS Software Services, a leading IT company in Kerala, said. The crisis that led to the bankruptcy of investment bank Lehman Brothers and the nationalisation of insurance giant American International Group is equivalent to the "great depression" of 1930s, Mathews said over telephone from the US. "Of course this is a serious issue. Due to the credit crunch, investments are likely to be delayed. The companies that have huge business interests in the US and whose client list includes financial companies will be affected badly," he added. "We do have interests in the US but our major markets are elsewhere in Japan, Europe and Australia," Mathews said. IBS is a leading provider of new-generation IT solutions to the transportation and logistics industry and its client list includes giants like Nippon Cargo Airlines, All Nippon Airways KLM, Oman Air, Emirates, Cathay Pacific, South African Airways, Air New Zealand, Qatar Airways and China Southern Airlines. But Arun Narayanan, who heads UST Global's Kerala operations, said the company was relatively safe given its balanced portfolios spread over various continents. "No doubt we are cautiously watching the scene unfold, and investments will take place with utmost caution. As far as we are concerned, this appears to be a blessing in disguise because, we feel that companies in the US as part of tightening their belts in the wake of this crisis will look forward to companies like us," Narayanan said. Headquartered in California, UST Global has close to 6,000 employees worldwide, of which more than 3,000 work in their two Kerala offices at Kochi and Thiruvananthapuram. Now it remains to be seen what sort of impact the US financial crisis will have on the proposed Rs.15 billion Smart City project at Kochi to be built by Smart City Dubai. The work on the project is scheduled to begin next month.

Tata Consultancy interested in Siemens SIS

Tata Consultancy Services, India's top software services exporter, is interested in Siemens' IT Solutions and Services (SIS) unit, a German newspaper said on Saturday. Talks between the two companies would begin next week in Munich, where Siemens is based, Germany's Boersen-Zeitung said, without saying where it obtained the information from. Siemens declined to comment. A couple of days ago, sources close to the company said that Siemens Chief Executive Peter Loescher was considering the divestment of SIS's external business, the paper said. Siemens is in the midst of a major overhaul and regrouped its divisions into three main sectors to benefit from global growth trends -- energy, industry and health care -- at the beginning of this year.

'Impact of Wall Street crisis will be marginal on India'

The great tsunami that started on Wall Street has become a global crisis. The suddenness with which some of the biggest Wall Street firms like Lehman Brothers, Merrill Lynch and American Insurance Group (AIG) collapsed like a house of cards is unbelievable. Lehman, after 158 years of high flying, filed for bankruptcy a little over a week ago. Merrill Lynch, Wall Street’s third largest investment bank, worth more than $100 billion last year, was bought by Bank of America for just $50 billion. AIG had to be bailed out by the US government with a $85 billion loan in exchange for nearly 80 per cent shares of the company, by far the biggest act of nationalisation in Wall Street’s history. As the contagion started moving across the globe like a giant hoover, gobbling many small and big-sized banks in other countries and forcing countries like Russia and Japan to inject massive sums into their financial systems, share markets tumbled everywhere. Inevitably, comparisons were drawn with the Great Depression of 1929. But this analogy is not correct. The world’s capacity to deal with such crises has increased enormously since 1929. To take one example, the massive intervention by the American government in the present crisis is unheard of. Already, the total bailout package by the US has crossed the $1 trillion mark and President George Bush has spoken of the urgent need for a new law to unclog the markets. Such acts of nationalisation of private debts would make past leaders of the US turn in their graves. Thus, corrective mechanisms are already in place and hopefully the crisis would be overcome sooner than later, albeit with many job losses and many stockholders losing money. How did this crisis arise? It started from retail banks lending enormous housing loans to borrowers with inadequate security and uncertain credit histories. These banks repackaged these doubtful loans as tradable securities and sold them to investment banks, such as Merrill Lynch and Lehman Brothers. Inevitably, when these borrowers defaulted, the market for these securities crashed. Some of the investment banks, like Lehman, had also invested substantially in the booming property market. When the housing boom went bust, the property market also collapsed, adding to the losses of the investment banks. The fact that in March this year the US government rescued Bear Stearns had raised fond hopes in Lehman Brothers that a similar rescue package may come their way. But this time, with elections around the corner, the American government refused to use public funds to absorb Lehman’s losses. The US Federal Reserve did not realise at this stage that this was only the tip of the iceberg and that they would have to intervene in a few days’ time. With an accumulated debt burden of $613 billion, Lehman Brothers had no other option other than to file for bankruptcy. This triggered a downward spiral in share prices and a crisis with others like Merrill Lynch announcing bankruptcy soon after.

Credit crisis: Offshoring under threat?

A top-ranked US analyst has said the events that shook Wall Street last week spell the end of the golden age of offshoring for India. Days after Wall Steet’s collapse, vice-president and principal analyst with US research firm Forrester, John McCarthy, said the scale of the crisis had rendered all previous studies including Forrester’s own survey, released earlier this month, redundant, and that Indian IT providers should prepare for slower growth and lower profits. “It is naive to say an economic slowdown is good because cost-cutting will lead to higher offshoring. This is no longer a recession, it is fundamental a re-structuring of financial services that is taking place,” he told ET from Boston, Massachusetts. Many analysts, including research firm, Gartner, had said there could be higher opportunities for Indian companies and for offshoring. However, Mr McCarthy said there was already an impression that the financial services sector was over-staffed. Mergers and acquisitions and the conversion of large investment banks into commercial banks meant there would be fewer employees, fewer vendors and less extravagant IT budgets.

eBay may cut 1,500 jobs

US online auctioneer eBay Inc may cut 1,500 jobs, according to an article in Barron's weekly, citing a report published last week by investment-research firm Wedge Partners. The Wedge report, according to Barron's, said eBay's business was "deteriorating" and the company was readying layoffs that could affect 10 per cent of its 15,000 employees. Wedge Partners and eBay could not immediately be reached for comment.

Now, TCS postpones promotions

It seems the financial turmoil sweeping the global markets has finally started hitting the Indian software industry. After a number of murmurs about impending job cuts and delayed appointment letters across top tech companies, the country's No. 1 IT services company Tata Consultancy Services has delayed promotions. Sources told Indiatimes Infotech that in a message on the company's internal website on Monday, the company's global HR head and vice president Ajoy Mukherjee, communicated the company's decision to employees. According to the note, Mukherjee has said that "considering the recent upheavals in the US financial markets that had global impact on the financial sector, we feel it would be prudent to wait for clarity in the business environment before we take a decision on promotions. As a result, the promotions will not be effected in second quarter this year." However, the company communique added that TCS had completed the assessment process of selecting the individuals eligible for promotions, but was holding back promotions in view of the "current business environment which remains challenging and is expected to remain so for the near future." When contacted by Indiatimes Infotech for their version of the news, the company's PR representative said that the company's spokesmen are traveling hence cannot be contacted. But sources told Indiatimes Infotech that the process for most employees had been finished way back itself, and they had actually been expecting the good news for the past few weeks. The letters, they pointed out, had been given out by this time last year. The catastrophic events overtaking global financial majors are expected to dent the revenues of Indian outsourcing companies, both in terms of the expected business and contracts they have already undertaken. Many of the affected investment banks are expected to pull out of some of their outsourcing contracts. Analysts are of the opinion that TCS is likely to be hardest hit by the US financial crisis because of its significant exposure to Merrill Lynch, which analysts say ranks among top five financial services clients.

Satyam, Wipro, TCS & Infosys go slow on hiring, defer joining dates

Recruitments, which are a strong indicator of the expected business for software firms, have suffered a significant drop while placements for the coming season are reflecting the uncertainty in global financial markets. The top four IT exporters have nearly frozen hiring of experienced professionals and have deferred the joining dates for many freshers, analysts said. Around a week or two back, number one software exporter Tata Consultancy Services (TCS) reportedly sent out letters postponing joining dates by six to nine months, people familiar with the situation said. “This quarter, we don’t immediately see a drop in revenues. But we expect the next quarter to show flat to negative growth for some of the top firms,” said an IT analyst, adding that TCS had the highest exposure to financial services among the top tier firms with around 43-44 % of its revenues coming from financial services. According to a survey conducted by brokerage CLSA in 45 colleges, the class of 2009 has received 17.4% lesser job offers compared to the previous year’s figures. Offers from Satyam and Wipro were about 33-50 % lower while that of TCS and Infosys Technologies were 16% and 12% lower, respectively. Regarding the class of 2008, the study noted, “Companies have pushed out the joining dates for the graduating class of 2008. Admittedly, the class of 2008 was given job offers in 2007, pre-slowdown and companies have ostensibly over-hired relative to demand.”

IT INDUSTRY UPDATES

International economic slowdown will not affect Indian software majors:

The international economic slowdown would not affect Indian software majors as the domestic market is growing at a good pace and the country has been recognised by multinational companies as one having global delivery capability, a top official of Birlasoft (India) Ltd said. Venkatesan Seshadri, vice president of the company, told reporters here that Indian companies now doing consultancy would be among the top 20 global companies in 15 years. The challenges facing organisations was the economic impact, GDP, competitiveness, availability of quality infrastructure and the need to have global competitive skills, he said. Stating that it was incorrect to say that the IT industry had slowed down or reached saturation point, he said there was uncertainty in the market. "We are waiting and watching. India's share in the software market is meagre and hence there is scope for more and more development"

Meltdown may mean more business for LPOs:
Even as the global meltdown casts its spell on India, there is one sector which could see more action in the coming months. Legal process outsourcing (LPO) is set to witness a surge in business, with more corporate houses and investment banks from the US turning to them for legal advise. Bankruptcy filings in the US have gone up in the last couple of months and that inturn has raised the demand for lawyers. Corporate houses in the US are increasingly shifting their credit crisis-related work to lawyers in India as it is a more viable and cost-effective option. Leading LPOs such as Pangea3, Quislex and Mindcrest, among others, have seen a significant jump in the number of outsourced projects in the last few months. “The demand for LPOs is on the rise as legal work related to bankruptcies in the global market has increased,” said Pangea3 VP Legal Services Antony Alex. Industry experts said the turmoil in the financial services sector is driving more legal outsourcing to India. “Since appointing a lawyer is expensive overseas, specially in the US and UK, it is natural for corporates to shift higher value work to India at this time of crisis,” said a source.

Goldman, Morgan's switch to banks means more biz for IT cos:

When Goldman Sachs and Morgan Stanley gave up their independent investment banking status, it gave reason for Indian IT vendors to smile. For, more regulations, as a commercial bank, could mean more business for software service providers. While the collapse of the other investment banks in the past few months sent jitters among the software vendors in India, government control of Goldman Sachs and Morgan Stanley gave the Indian IT some reasons to cheer. Because, morphing into a full-fledged bank not only implies greater access to funds but also more regulation. And tighter regulation could mean tweaking their existing technology by adding more software and processes. They would have to adopt systems in areas such as retail banking, consumer banking, cards and corporate banking.