The UK government's decision to cut spending in most government departments may adversely impact the Indian IT sector, which gets a sizable chunk of its business from the country, a study said.
"We believe that these sharp cuts are near-term negative for Indian IT players, as it could lead to some business reduction," a report by Religare Capital Markets Ltd, the investment banking and institutional securities firm, said.
The UK government on Tuesday announced 25 per cent budget cuts for most government departments over four years.
The top Indian IT firms have significant exposure to the UK, with 12-15 per cent of their business coming from the country.
"Overall, we see this as a near-term negative for Indian IT.... Our sector view on Indian IT remains cautious," it added.
However, Indian IT players, particularly TCS, have so far not seen any significant impact on government contracts, it added.
The report further said the cost pressures should lead to increased offshoring in the medium term, but vendor choices might be political.
European vendors with an offshoring presence (primarily CapGemini) might be beneficiaries, given the political resistance in Europe to jobs being outsourced.