Indian outsourcers feel the pinch

After being a key part of India’s technology boom, the outsourcing industry is suffering.

According to Reuters, the woe is due to uncertainty about spending by US and European clients who are a bit short of cash.

Apparently they are all chanting a mantra which says that demand will pick up in the second half of the year.

Analysts expect No 2 ranked Infosys, the only top-three vendor to provide a full-year forecast, to sort its revenue growth estimate for the current fiscal year to as low as five percent when it posts quarterly earnings on 12 July.

Infosys predicted an 8-10 percent growth for the fiscal year ending March 2013. That was bad enough as investors expected it to make 13 percent of its market value on the day. However it has only gained about two percent since.

The National Association of Software and Service Companies, or NASSCOM, an industry lobby, expects the industry to grow exports by 11-14 percent in the current year that ends in March.

Apparently Western customers are holding back discretionary spending due to the extended euro-zone crisis. There is no evidience that an economic recovery is under way in the United States either and that is where Indian companies make most of their cash.

Apurva Shah, head of research at BNP Paribas Mutual Fund, which manages investments of about $750 million, said that hopes of a recovery in the second half are just hopes.

To make matters worse the business is becoming harder to do. Clients demand more for every dollar spent and that is stuffing up billing rates on a commoditised set of services that Indian firms, competing with Accenture and IBM, rely on for the bulk of their revenues.

Shares of Infosys, which has a market value of about $25 billion, are down about 11.5 percent this year, while those of top-ranked TCS are up about 8.7 percent. By comparison, the main 30-share Bombay index has gained about 13 percent.