Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Software: Uncle Samís still calling! - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Sep 30, 2003

    Software: Uncle Samís still calling!

    Of the US$ 9.5 bn in revenues that the Indian software services exports clocked in FY03, almost 71% (67% in FY02) came from the US markets. This rise in the US share comes despite the fact that the US economy has been in the grip of a slowdown for the last two years. The consequences of slowdown in the US economy can very well be judged from the fact that the US market contributes to around 40% of global IT spending (Gartner research). Even at the present, no signs of sustainable improvement are to be visible. In this light, let us discuss Indian software companiesí performance as far as their clients in the US are concerned.

    As seen from the graphs above, almost all of the Indian software services majors (with the exception of Hughes Software) have increased, or have kept stable, their share of revenues from the US markets. In times when the pressure on billing rates came mostly from their US clients (because they are at the forefront of driving the move towards outsourcing), these Indian companies continued to strive on getting larger deals from them (the clients). However, they (the Indian companies), with the exception of a few, were not majorly successful in getting big deals. In anticipation of these Ďmuch-awaitedí deals to flow to them, Indian software companies continue to add to their employee base and invest in widening their selling and marketing network globally (especially in the US).

    The slowdown in the US economy has, however, benefited the Indian software services companies. This is because of the fact that companies in the US have been rationalizing their costs and have been on the forefront of outsourcing their jobs to India. Even in the future, the need to remain competitive in the face of ever increasing competition would force those companies in the US to outsource more of their jobs to low-cost destinations like India. While, off late, there have been campaigns in certain US states because of job losses in government departments due to outsourcing of jobs to India, this is not likely to spread to the private sector companies. In fact, the economical sense that outsourcing makes would prevent this backlash from spreading too far.

    Also, the concern that the appreciating rupee is making our exports to the US uncompetitive seems overplayed. This is because of the fact that software exports from India are competitive enough to negate effects of the rising rupee. While this is not to say that the appreciation has not had any effect on the financial performance of Indian software companies, what we are trying to put forward is that this is a short-term phenomenon. As Indian software companies (like Infosys and Wipro) continuously upgrade their offerings and move up the software value chain, competitiveness in export markets would be more defined by quality then by the value of the rupee.

    On a final note, while Indian software companies are waiting for the US economic recovery to happen, this wait is more concerned with the size of the orders they are expecting to garner. This slowdown has ensured that Indian software companies now desist from giving overly optimistic guidance figures. And this has shifted investorsí focus from promised performance to actual performance. Also, the fact that these companies have improved on the operational fronts in times of increasing global competition would help them in sustaining in times of hardship. Thus, investors in the Indian software sector need to keep in mind that, over the long-term, despite all kinds of pressure, quality companies would provide them with adequate returns.



    Equitymaster requests your view! Post a comment on "Software: Uncle Samís still calling!". Click here!


    More Views on News

    Tech Mahindra: Our Revised View (Quarterly Results Update - Detailed)

    Aug 2, 2017

    A better than expected turnaround in performance results in a change in view.

    Wipro: A Decent Start to the Year (Quarterly Results Update - Detailed)

    Jul 27, 2017

    Digital services drive growth for Wipro in 1QFY18.

    Infosys: A Decent Start to FY18 (Quarterly Results Update - Detailed)

    Jul 14, 2017

    Infosys starts FY18 on an encouraging note with a stable performance.

    Ankit Shah's First Five Insider Recommendations (The 5 Minute Wrapup)

    Aug 5, 2017

    How to get exclusive insider recommendations from Ankit Shah.

    TCS: Currency Volatility Plays Spoilsport (Quarterly Results Update - Detailed)

    Jul 14, 2017

    TCS starts FY18 decently despite an adverse currency impact.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE IT

    Aug 18, 2017 (Close)