Re appreciation, sub-prime crisis spoils IT growth

New Delhi, Nov 20: Strengthening of Rupee alongwith sub-prime crisis in the US and the UK, is playing a spoil sport in the growth of IT sector in India, a study said.

According to industry chamber Assocham in its Eco Pulse study on the second quarterly results by the top four IT companies including Wipro, TCS, Satyam and Infosys, which account for more than 70 per cent of the sector's revenue, has highlighted that the salary payments in the sector which were growing at the high rate of 64 per cent till last year have slowed to 25 per cent.

''A 12 per cent appreciation in Rupee against the dollar and the shut down of many mortgage finance companies led by heavy losses in sub-prime segment could have played spoil sport in IT growth story,'' the Assocham president Venugopal N Dhoot said in a statement.

The sales growth of the top IT firms has come down from average 45 per cent in first two quarters in previous fiscal to 27 per cent this financial year, Mr Dhoot added.

The study showed that Tata Consultancy Services (TCS) in its league reduced wage bill by five per cent in Q2 over the second quarter of FY2006-07.

The employee compensation reported by TCS reduced from Rs 1,557 crore in Q2 of FY07 Rs 1,470 crore in three months ending September 2008.

In contrast, last year the IT giant recorded 57 per cent rise in wage bill in second quarter of the FY 2006-07.

Strengthening of Rupee against the US currency has put pressure on the profit margins of the IT companies whose 90 per cent revenue are dollar denominated.

As per the AEP, average growth rate of net profit of IT majors has declined to 22 per cent in April-September period of current financial year as compared to 48 per cent increment in similar period last year.

As a result, the companies are compelled to reduce the wage hikes to cut down the expenses.

The cumulative wage expenses of the four companies tracked by AEP were Rs 6,067 crores in the second quarter of current financial year as compared to Rs 5,164 crores last year.

The study said the Q-on-Q sequential growth in the cumulative salary expenses of these companies is almost zero as the total salary amount in first quarter of this year was Rs 6,047 crores.

''Hedging against further appreciation of Rupee may secure the revenue growth in coming quarters but any slowdown in the US economy may dampen the IT sector growth,'' Mr Dhoot said.

The AEP stated that the hiring spree of the IT companies also seems to have slowed and the employment outlook for the current financial years is not as encouraging as in the last year.

UNI