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An encouraging Nov for Indian IT

A flurry of news on the information technology and IT-enabled services industry over the past weeks has put the spotlight back on India’s hottest sector and the indication seems to be that a good part of the challenges it faced over the past couple of years may be over.

india Updated: Nov 20, 2011 20:48 IST

A flurry of news on the information technology and IT-enabled services industry over the past weeks has put the spotlight back on India’s hottest sector and the indication seems to be that a good part of the challenges it faced over the past couple of years may be over.

First, Tata Consultancy Services (TCS), the country’s top software service exporter, announced its second biggest outsourcing contract worth $2.2 billion (Rs 11,076 crore) from UK-based pension firm Friends Life.

Now, India’s IT and business process outsourcing (BPO) industry has always faced a paradox of sorts. On the one hand, a downturn in Western markets can be viewed as an opportunity for India because cost-cutting during such times increases the chances of work being farmed out to competitive offshore locations. On the other hand, the overall IT spending does ease up in difficult times. On top of that, fears of job losses in the West creates an uneasy atmosphere for outsourcing contracts to be given. In such a backdrop, the TCS win in the UK — where carping against Indian IT/BPO is higher than in the US — is a positive signal.

Days after TCS, mid-sized Hexaware Technologies, announced a UK deal for five years worth $250 million with an unnamed but significant client in its single largest deal yet. Considering that Hexaware’s revenues this fiscal year is estimated to be $306 milllion, the deal is a quantum jump.

Between these two pieces of news came a big surprise: billionaire Warren Buffett, who has for decades shunned investing in technology firms because he does not quite understand it, changed his stance by revealing that his Berkshire Hathaway fund had acquired a 5.4% stake in IBM at a cost of $10.7 billion. Significantly, the vote of confidence came on account of IBM’s services business, which is substantially based in India.

All that should be good news for TCS, Infosys and Wipro and other IT service companies of India because they pretty much do what IBM does in the services space with comparable business practices.

Last, but not the least, the US dollar strengthened to touch R 51 to the rupee last week. Given the shaky atmosphere that started after the Wall Street meltdown in 2008 and the subsequent financial crisis in Europe, the developments in November signal the resilience of the Indian IT industry.