Why the poor results. The Indian IT sector to a large extent depends on the banking and financial services industry (BFSI) in the US. Unfortunately, this is the sector that is at the epicentre of the current crisis. As these companies have cut down on their IT expenditure, India’s leading IT service providers were bound to be affected. Moreover, the crisis has now engulfed other sectors as well. As Deepak Purswani, research analyst, Sharekhan, says: “The demand environment remained challenging in this quarter.”

Last time, when the dotcom bust happened, IT companies tried to diversify their client base to Europe and other developed nations (to reduce their dependence on the US). During the current crisis, even that strategy has come to nought as the economic problems emanating from the US have now engulfed the entire developed world. One saving grace has been the depreciation of the rupee. “In previous quarters, the depreciation of the rupee provided some cushion to IT companies,” adds Purswani.

Past quarters

For the same set of the companies, in Q1 PBDIT grew by a meagre 0.19 per cent (y-o-y basis) while net profit showed a negative growth of 5.1 per cent. Explaining this Purswani says: “Companies such as Wipro and TCS go in for wage hikes in Q1. This led to such a fall in profits.” The situation improved somewhat in Q2 and Q3, with income and net profit growing y-on-y by 26 per cent in both quarters. Y-on-y net profit inched up 1.8 percentage points from 12.3 per cent in Q2 to 14.2 per cent in Q3. However, on a q-o-q basis, income and net profit declined significantly by 590 basis points and 1,390 basis points respectively (from Q1 to Q2 and from Q2 to Q3). (See table).

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