India IT firms upbeat on growth despite softer U.S.

By Sumeet Chatterjee

BANGALORE (Reuters) - Indian outsourcing companies are optimistic about their growth despite a downturn in the U.S. economy, on hopes of strong technology spending by global firms, and as they focus on expanding their businesses in newer markets.

Investors have been worried about the impact of a deepening U.S. subprime mortgage crisis, raising the chances of a wider economic downturn in a country that accounts for more than half the revenue of Indian software services exporters.

Cisco (CSCO.O: Quote, Profile, Research, Stock Buzz), the world's biggest maker of telecoms network gear, set tech sector investors on edge last month by saying the company had been hit by "dramatic decreases" in orders from U.S. banks. Until then, the sector had been seen as a safe haven.

"To my mind, Indian value proposition is so strong that whenever the IT budgets come down ... they tend to source from India because they want higher bang for the buck," said Suresh Senapaty, chief financial officer of Wipro Ltd WIPR.O.

"From that perspective, we would not expect any adverse business situation ... we have seen that in the past and I am sure the future will prove that again," he told the Reuters India Investment Summit in Bangalore on Friday.

Shares in Indian software services companies have sharply underperformed the broader market this year on worries about the rising rupee, which has risen about 12 percent against the U.S. dollar this year, and a possible slowdown in the U.S. economy.

In 2007, shares in India's No. 2 software services exporter Infosys Ltd (INFY.O: Quote, Profile, Research, Stock Buzz) have fallen 23 percent and top exporter Tata Consultancy is down nearly 13 percent, while the sector index has fallen 16 percent.

India's main Mumbai index .BSESN is up 45 percent.

TECHNOLOGY SPENDING

Indian outsourcers, who have thrived by providing technology and back-office services to western firms looking to cut costs, do not anticipate a sharp pull-back in technology spending by global corporations in 2008.

"Currently, so far the feelers we are getting, the visits that we are seeing, the number of deals that we are seeing, the situation does not look any different than what it was three months back," Senapaty said.

The offshore component of the global firms' IT budget is likely to grow in the next few quarters as companies try to reduce cost and boost efficiency in a slowing economy, said N. Chandrasekaran, chief operating officer of Tata Consultancy Services Ltd (TCS.BO: Quote, Profile, Research, Stock Buzz).

"I am not worried about the U.S. slowdown at all. What I am more worried about is the rupee's rise against the dollar and the way it is impacting their margins," said Tejas Doshi, head of research at Mumbai brokerage Sushil Finance.

Indian services firms are also expanding their footprint in Europe, Asia Pacific and some other regions to offset the impact of a rising rupee. Every one percent increase in the rupee impacts margins of outsourcers by 30 to 50 basis points.

Companies like MphasiS Ltd (MBFL.BO: Quote, Profile, Research, Stock Buzz) and Electronic Data Systems EDS.N are also looking to corner a major share of the Indian outsourcing business as government departments and financial firms step up investment on technology.

(Editing by Bernard Orr)