New Delhi, Nov 13: A US economic downturn could give a boost to India's flagship outsourcing industry even though it is being hit by a rupee trading at near decade highs, says the head of leading Indian computer services provider Wipro.
Shares of India's software services giants have slumped in the face of investor worries about the rupee's 12 percent ascent this year against the dollar, the currency in which the firms make most of their profits, and concern that a US economic slowdown might force US companies to cut IT budgets. But Azim Premji, the billionaire chairman of Wipro, India's third-largest software services provider, says a US economic downturn could be good tidings for Indian firms supplying information technology services to customers abroad.
"Whenever the world is facing cost pressures or facing a little lower demand, then US companies will face the need to take out costs," Premji said in the Indian capital where he was attending a business summit. "So the contrarian situation is that they could outsource more and that would benefit the software industry," Premji, whose 80 percent holding in Wipro makes him one of India's richest men, said in a recent interview.
Still, the rupee's rise against the US currency has crimped operating profits as a percentage of sales of the Indian software industry. The value of Wipro's shares have fallen by almost a quarter, making it one of the worst performers on India's stock market this year. Shares of its bigger rivals Tata Consultancy Services and Infosys Technologies have also dropped.
The next couple of months will be a "wait-and-watch situation" as the magnitude of the US subprime crisis unfolds, Premji said.
"What is of concern is uncertainty -- that's when people start sitting on the fence on (business) decisions," Premji said.
So far, Wipro, based in the Indian IT hub of Bangalore, has not "found any slowdown in demand" as a result of the rupee's climb, he said.
In October, Wipro announced second-quarter profit growth of 18 percent to 8.24 billion rupees (208.4 million dollars) on the back of overseas orders, new clients and a 600-million-dollar US acquisition.
The stronger currency does pose "challenges in terms of profitability," Premji said.
However, the appreciating rupee also brings "a huge opportunity to drive transformation in terms of more productivity, in terms of getting a more viable business model."
Premji built Wipro from a soap maker into one of India's biggest IT companies, riding an outsourcing wave by US firms that sought to cut costs by tapping the country's large engineering talent pool and low wages.
India's software sector posted a 33 percent increase in exports in the financial year to March 31, 2007 to 31.4 billion dollars.
Between April and the end of November, sales grew by 29 percent and will likely be 28-29 percent for the year, Premji forecast, the decrease reflecting the rupee's rise eroding the value of foreign earnings.
But while investors fret about the foreign outsourcing outlook, there are huge domestic possibilities in India where software companies are only beginning to tap the market in the country of 1.1 billion people, Premji said.
"We're underestimating the opportunities -- we have a very high domestic market potential," Premji said.