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New Delhi, Jan.7 The Satyam scandal, which has shaken up corporate India, could not have come at a worse time for the troubled Indian IT industry.

Stunned by the financial irregularities at Satyam, global outsourcing advisory firms now expect concerned overseas clients to go for stringent diligence and closely scrutinise reliability of vendors while handing out IT contracts.

These consultants - who advise overseas customers on outsourcing contracts - also anticipate large-scale client exodus from the Hyderabad-based company, particularly up to the $1-2 million in engagements.

“It will definitely dampen the overall enthusiasm. Clients will surely look at risk mitigation while giving out work and reliability will come under scrutiny. All this is bound to delay the sales cycle,” says Mr Sudin Apte, Senior Analyst, Forrester Research.

Mr Apte said that Satyam’s 120-150 clients who fell in the $1-2 million engagement bracket and were not so heavily dependent on the beleaguered company would be the first to go. “The large clients will follow, as there is an uncertainty over what will happen to the Satyam project team since employees too are jittery,” he said.

Market analysts felt that nearly 25-30 per cent of Satyam’s client base could easily swap suppliers.

Many analysts felt that the shocking disclosures by the Satyam promoterput brakes on the company’s ability to find a suitor for a full merger. “Given the possibility of an investigation and restatement of accounts, the attractiveness of Satyam has gone down substantially unless it goes at a throwaway price. No one will touch it for at least next two months till there is a greater clarity on the future roadmap,” they said.

A senior investment banker agreed that possibility of lawsuits and the uncertainty on the actual financial position of the company will drive away acquirers, who would rather concentrate on taking away Satyam employees or client accounts.

The advisory firms are uniform in their belief that the fiasco would worsen the situation for other Indian IT vendors, who are already struggling to cope with the global downturn.

The industry said that existing IT vendors who share the clients with Satyam will move in to take over Satyam’s business. “There will definitely be an attempt to capture Satyam’s revenue, particularly by those who work on joint accounts with the company,” they said.

According to Mr Sabyasachi Satpathy, Co-Founder of Mindplex Consulting, another outsourcing advisory firm, the irregularities would slowdown the decision making on large IT offshore contracts. “Clients will do stronger diligence before outsourcing to Indian service providers. When the Satyam promoters announced the Maytas deal, we advised the industry to keep their eyes open and negotiate options of termination beforehand when they sign large contracts with Satyam,” he said adding that short-term delivery of engagements will become a challenge for the Hyderabad based firm.

Business confidence will get tarnished, he said. “The disclosures have put the Indian IT industry on a back-foot. There will be a rise in client diligence, and they will look closely at compliance with regulations including Sarbanes-Oxley – all this in addition to the geo-political risk perception for India,” he said.

However, Mr Avinash Vashistha, Chairman and CEO of advisory firm Tholons, said that Satyam incident was more an anomaly than a trend and that the firm was advising clients not to doubt India’s offshoring prowess. “Satyam needs to immediately merge, to stop erosion of clients,” he said.

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