India's Strong IT Sector So Far Unaffected by U.S. Turmoil

By Jason Simpkins
Associate Editor

The U.S. financial services sector has been devastated by the widespread collapse of mortgage-backed assets, but banking, financial, services, and insurance (BFSI) operations in India have been markedly less affected.

The BFSI segment has historically been the highest spender on technology and accounts for a substantial portion of revenues generated at world-renowned Indian information technologies companies. If quarterly results are any indication, BFSI operations for Indian IT service providers such as Infosys Technologies (INFY), Wipro Ltd. (WIT), and Tecsys Inc. (TCS) - India's three largest IT firms - are flourishing.

Infosys' BFSI segment recorded 7% sequential growth in the October-December quarter while Wipro Technologies posted 9.8% growth. Meanwhile BFSI at TCS accounted for 44% of the company's third quarter revenue. The three companies have reported a surge of 20%-25% in their collective third quarter profit, and added 57,554 people to their payrolls in 2007.

The BFSI segment for Cognizant Technology Solutions, another high-powered Indian IT firm, accounted for 47% of the company's revenue, an increase of 7% for the quarter.

That doesn't mean that the Indian economy is invulnerable to the faltering U.S. economy.

"The environment for the industry as a whole is cautious and positive," Kris Gopalakrishnan told Reuters in an interview.

But BFSI-related revenue is the bright spot in a struggling IT market, as a 12% rise in the rupee against the dollar in 2007, soaring wages, and growth worries in the United States hammered IT shares last year.

The Reserve Bank of India (RBI) estimates that the dollar's declining value added $7 billion to India's external debt.

The U.S. Federal Reserve has slashed its key rate by 1.25% in the past two weeks greatly increasing liquidity and further weakening the dollar. Its widely expected that the RBI will hold rates steady at a six-year high of 7.75% for the for the next several months at least, as it struggles to curb inflation.

However, if conditions in the U.S. continue to deteriorate, the Reserve Bank could reverse its course. "India cannot be totally immune to global developments," Governor Yaga Venugopal Reddy said earlier this week. "While the focus has generally been on managing excess capital inflows, it is essential not to exclude the possibility of some change in course, due to any abrupt changes in sentiment," he said in a statement.

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