Ashika Monthly Insight August 2016

STRONG ON CONSUMPTION
Cloud services are growing due to organizations pursuing a digital business strategy. Among Indian companies, Mind Tree
and Peristent Systems have gained importance among other global IT companies followed by Tech Mahindra, L&T Infotech
and Hexaware Technologies as shown below.
Mind Tree is leading in the digital services category globally
However, recently IT sector performance has been soft
due to delayed client spending mostly due to uncertainty
around two factors:
• The upcoming presidential election in the US will
play a crucial part: India’s export of software services
accounted for $82 bn in the financial year March
2015, according to the Reserve Bank of India. 60%
of the export revenues came from North America.
Recently, America has doubled the fees for certain
categories of H1B and L1 visas to $4,000 and
$4,500 respectively which will adversely affect the
Indian IT companies. Nasscom said the decision’s
financial implications for the Indian technology
sector would be around $400 mn a year. In addition
the US presidential elections’ candidates are Hilary
Clinton and Donald Trump out of which the latter is
not so favorable to outsourcing of employees. He
has been frequently accusing India and China of
taking unfair “advantage of the United States” and
also told “H-1B, whatever it is, I use it but I don’t like
it. I want to scrap all H-1B visas.” IT industry may
face setbacks if Donald Trump wins the elections.
• Brexit may likely cause a delay in consumer
spending: The unexpected and most eventful event of
the UK leaving from the EU finally happened and will
likely have its repercussions over the coming years.
Many clients have delayed their client spending
because of the uncertain impact from this event. If
the UK currency -Pound depreciates further, current IT
contracts, if not re-negotiated, would either become
loss making propositions or would not yield the same
kind of margin. However, this may cause a temporary
setback for Indian IT firms but according to Nasscom
President “in the longer term, Brexit holds
opportunities for India”
Below are the companies whose exposure to the US and
European countries are given below. Tier 2 IT firms like
Persistent Systems and Hexaware derive more than 80%
of the revenues from North America while NIIT Technology
has the highest exposure (35%)to the European markets,
followed by Tech Mahindra which has around 29% of
exposure in Europe. Attrition rate of Infosys and Cyient has
been the highest >=20% off-late.
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