Indian outsourcers see opportunity in U.S. credit downgrade

India's National Association of Software and Service Companies (Nasscom) said Monday that an economic slump in the U.S. will benefit Indian outsourcers, as U.S. customers look to cut costs.

The downgrade of the U.S. federal government's credit rating last week by rating firm Standard & Poor's has led to forecasts that there could be a second recession in the U.S. after a short-lived recovery, popularly referred to as the double-dip, Nasscom noted.

"In case of an economic slump, we see the Indian IT industry strengthening its partnership with U.S. customers to build in greater business efficiencies," Nasscom said late Monday.

Wipro, India's third-largest outsourcer, took a similar position on Monday, stating that the structural weakness in the U.S. economy offers opportunities to IT services companies, as they help global corporations get more competitive.

North America accounts for about 55 to 65 percent of the revenue of Indian outsourcers, with Europe accounting for about another 25 percent. The view of analysts is that even when the outsourcing market shrinks in an economic crisis, the business to India increases because of the lower costs in the country.

Outsourcing declined worldwide by 18 percent to US$16.4 billion in the second quarter. Indian outsourcers increased share and some of them posted strong revenue growth rates in the quarter, according to sourcing and data advisory firm TPI.

Nasscom's and Wipro's remarks may also have been aimed at Indian stock markets where the share prices of Indian outsourcers took a beating. The share price of Tata Consultancy Services, India's largest outsourcer, dropped 4.5 percent early Monday on the Bombay Stock Exchange, while that of Infosys, the second-largest outsourcer, dropped 4.7 percent.

Nasscom said it will continue to monitor the developments in the U.S. and counseled the Indian IT sector to maintain a "cautious outlook going forward."

John Ribeiro covers outsourcing and general technology breaking news from India for The IDG News Service. Follow John on Twitter at @Johnribeiro. John's e-mail address is john_ribeiro@idg.com

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