GLOBAL MELTDOWN MAY IMPACT PRICING OF LOCAL IT COS

N Shivapriya, Mumbai
The Economic Times

The global credit squeeze and US slowdown are giving rise to fears that Indian IT companies could face pricing pressure. This follows bigger than expected write-offs by some global financial services majors and a continuing recession in the US, which is affecting retail spends.

UBS, which has written off over $35 billion, is said to be looking at a lower IT budget and 8-10 percent cut in pricing, while JP Morgan is reportedly asking for 15-20 percent pricing cuts in return for higher business, according to a recent CLSA survey on pricing.

UBS is among the top clients for Infosys, while JP Morgan is a key client for Cognizant Technology Services. If the pricing cuts happen, then the outlook for the sector, which is already facing a reduced volume of business because of project postponements and delayed decision-making, will worsen further.

The industry is cushioned by the depreciating rupee, most IT companies have assumed a value of Rs 40 to the dollar in their guidance, but the rupee has fallen to Rs 42-43 against the dollar.

When contacted, the top four Indian IT companies, TCS, Infosys, Wipro and Satyam, refused to comment on whether they were facing any pricing pressure because they were in the ‘quiet period’ before the announcement of their quarterly results. Cognizant also said it was unable to comment for the same reason. IBM and Accenture, which have a significant offshore presence in India, did not respond.

“We have not yet come across such a situation. As on today, we are not seeing any pricing pressure,” said Hexaware Technologies chairman Atul Nishar, a medium-sized IT firm with some large global banks as its clients.

“We are clear that we want to maintain our pricing. My sense is the industry will also resist any move to reduce prices because of the uncertainty in the rupee-dollar movement. Pricing will not come down easily, although the industry may witness price reduction in specific cases where the clients are cutting down costs,” he said.

The CLSA survey, done with nine vendors, including the top five Indian IT vendors, says four of the nine respondents expected pricing to be stable and at last year’s levels, while five of them expected pricing to deteriorate slightly, but stay positive. The report says if demand doesn’t pick up soon, pricing may not stand its ground.

Accenture’s third quarter results announced last week, however, belie some of these fears. The multinational consulting and technology services firm posted one of its strongest quarters with a profit growth of 36 percent and announced a higher than estimated fourth quarter guidance.

While Accenture’s business cannot be compared on a like-basis with Indian offshore providers, it indicates that the business environment may perhaps not be as negative.

However, what seems more certain is that software vendors may not be able to manage better billing rates from clients. Last fiscal, software companies were able to get 3-4 percent higher billing rates on new contracts and contracts coming up for renewal.