Date:10/07/2008 URL: http://www.thehindubusinessline.com/2008/07/10/stories/2008071051551400.htm

Back IT sector watching out for greater clarity from US

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Mumbai, July 9 The Indian IT sector will have to watch out for not only how the US economy shapes up, but also how the US presidential elections pan out, said analysts.

A lot will be depend on whether the next US president decides to give tax breaks to companies that ship jobs out of the US, or to companies that invest in the US, according to an Angel Broking report.

This is a clear indication that off-shoring might not have an easy ride at least until the US elections scheduled for November 2008, said the report.

There is a fear that Mr Barack Obama, who has a bent towards protectionist measures, might introduce policies which might not favour companies outsourcing their jobs, said another analyst with a broking firm.

‘sentimental impact’

The companies in the US would then be more resistant to giving jobs to people in other countries, said Mr Anurag Purohit, IT analyst with Religare Securities. “There will certainly be a sentimental impact on IT stocks as the political stand of one of the US Presidential candidates is towards protectionist policies,” he said.

It means that the future growth of IT companies is at risk in that case, he added.

Within the IT sector, the BPO companies in India will be hit hardest, said Mr Purohit.

When overseas companies outsource to BPOs, there is a cost benefit which they get, and this is the primary selling point of Indian BPOs, said analysts.

The BSE-IT index has lost more than 13 per cent over the first quarter of the fiscal, while the Sensex lost around 14 per cent in value over the same period.

While the benchmark index Sensex fell by more than seven per cent over the last month, BSE-IT was down by 4.20 per cent.

The IT sector is seeing the positive impact of rupee depreciation over the quarter, and it is going to be the determining factor in the coming times also, said analysts.

Ahead of their results, most IT companies have been doing well, even though the markets were weak the past week. The IT sector is watching out for greater clarity on the US economy and more information on the clients’ spending patterns.

“The main factor which is causing uncertainty in the IT sector for the future is whether the US economy will stabilise and bounce back enough for demand for IT services to increase”, said Mr Anurag Purohit. Shares of Firstsource Solutions Ltd rose by 4.96 per cent from a month ago, Sparsh BPO Services Ltd was down by more than 12 per cent, Allsec Technologies Ltd was up by 1.27 per cent, Spanco Telesystems was down by 4.95 per cent and Tricom India Ltd was up by more than 8 per cent during the same period.