Debt crisis fails to roil Indian IT companies' Europe plans

BANGALORE Wed Nov 23, 2011 7:43am EST

BANGALORE (Reuters) - Indian IT services exporters are on track to increase Europe's share in their revenue and see only a short-term impact of the paralyzing debt crisis, top executives said at the Reuters India Investment Summit.

The debt crisis is sweeping closer to the heart of euro zone, with fears that the contagion may now spread from Greece and Italy to Spain and France.

India's showpiece IT sector feeds off increased outsourcing by companies trying to cut costs. As the crisis in Europe -- the sector's second-largest market -- deepens, clients will likely outsource more, executives said.

"We are seeing clients -- who in the past have been hesitant to outsource ongoing application management work -- are now looking at outsourcing those type of services," Cognizant Technology Solutions (CTSH.O) Chief Financial Officer Gordon Coburn said on Tuesday.

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Graphic on Infosys: link.reuters.com/raf44s

Graphic on Cognizant: link.reuters.com/cap25s

For StarMine dataset: r.reuters.com/jer25s

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

A slowing U.S. market, which accounts for more than two-thirds of the Indian IT industry's exports, has forced companies such as Infosys (INFY.NS), TCS (TCS.NS) and Cognizant to expand their business in Europe and Asia.

"The short-term challenges will impact business, but in the long term, we see opportunities even in Europe," S.D. Shibulal, Chief Executive Officer of Infosys, said on Wednesday.

Infosys plans to double its revenue share from Europe to 40 percent by the end of its 2014 financial year, while Cognizant expects "significant revenue" coming from the region in the next 4-5 years.

Infosys and Cognizant are also looking to scale up in continental Europe through acquisitions.

"We are now making heavy investments in building up our capabilities in France and Germany," Coburn said on Tuesday.

It's not just the IT sector that is expecting gains from the crisis. Kiran Mazumdar-Shaw, head of India's largest listed biotechnology company Biocon Ltd (BION.NS), said diminishing returns on R&D spending is forcing European and U.S. companies to outsource their research work to India and China.

SHORT-TERM CONCERNS

Both the companies are, however, cautious about the short-term impact from the Europe crisis.

"Europe in 2012 is tough to determine," Cognizant's Coburn said.

Analysts echoed the sentiment.

"Nobody is quite sure what the impact of the sovereign debt crisis will be on demand for capital goods," analyst Mark Wilson at Collins Stewart Europe said.

(Additional reporting by Himank Sharma and Krishna N Das in Bangalore; Editing by Sriraj Kalluvila, Saumyadeb Chakrabarty)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.