Challenges ahead

Pricing continues to be a major headwind for the sector due to the bad global economic environment. According to G Shyam Sundar, vice president, CIL Securities, “Slowdown in the West is taking a toll on this sector. The IT budgets of companies, which have already started to go down, are expected to decline further.”

The rupee depreciated around 27.4 per cent in FY09. “In future currency volatility could be a cause for concern,” says Purswani.

As for the future, Sundar says: “Margins of frontline companies are expected to decline.” Adds Purswani, “The major cost of IT companies is wages. These companies won’t go in for wage hikes and will try to cut down their selling, general and administrative expenses.”

Outlook

A meaningful improvement in the prospects of this sector is not expected until a recovery comes about in the West. “The IT sector is expected to struggle for a couple of quarters. Thereafter, some stability can be expected. A few big players are expected to do well in the coming quarters due to their diversified business models. Specific mid-cap companies may do well due to their expertise in areas such as engineering. Recovery is expected in a year’s time or more,” points out Sundar. Purswani, too, believes that post Q2FY10 some stability may come about in IT, depending on how the macro-economic environment pans out.

niti.kiran@expressindia.com