Mumbai/ Bangalore/ New Delhi, April 1 It’s official. The Indian IT sector, the pride of Indian exports, is generating fewer dollars, predominantly due to the global credit crunch and the cross currency movements.
Software receipts – as articulated in the latest Balance of Payments data compiled by the Reserve Bank of India – registered a decline of around 10 per cent in the quarter ended December 31, 2008 to $10.16 billion from $11.29 billion reported in the previous sequential quarter. However, on a year-on-year basis, it increased by 16 per cent from $8.75 billion.
Not just pricing pressure
A look at the third-quarter numbers of major IT companies indicates that most of them have recorded muted growth. The sequential decline is a function of price de-growth and volume de-growth, according to the CFO of a Bangalore-based IT services firm, who did not wish to be quoted, as the firm is in a silent period before the quarterly results. The official also added that a longer credit period has led to relatively lower collection in the third quarter.
However, the Chief Financial officer of one of India’s top five software companies is of the view that one cannot attribute the falling export revenues to pricing pressure alone. “In the December quarter, there was not much of pricing pressure. Most of it happened from January,” he said.
There are others who blame it on the cross currency environment; while the dollar strengthened against the rupee in the third quarter, it weakened against other major currencies such as euro, pound sterling and Australian dollar.
Said Mr Som Mittal, President of Nasscom: “While there is an economic impact, the dip (in receipts) is also due to cross currency movement. If you see the results of companies in dollar terms, some large companies showed a sequential dip in revenue. Since we measure in dollars there is an impact due to cross currency.”
Dollar conversion
The RBI converts rupee-term revenue into dollar-term revenue and then publishes the Balance of Payment report. In the quarter ended September, the rupee stood at 43.7 to a dollar, while it stood at about 48.8 in the quarter ended December, an analyst from a Mumbai-based firm said.
Now, when the central bank converts rupee-term revenue to dollar-term revenue to publish the report, it has to divide the rupee-term revenue by the exchange rate to get the dollar-term revenue. If the exchange rate (the denominator) is higher, the dollar-term revenue will be less, the analyst said.
This could also be one of the reasons why the dollar-term revenue in the RBI Balance of Payment report has shown a sequential decline. (The exchange rate in the December quarter was higher as mentioned earlier).
While top tier firms have been impacted due to the economic recession, the ones facing the maximum brunt are the small and mid-size IT vendors, said Mr Diptarup Chakraborti, principal research analyst with research firm Gartner Inc.
As SMEs and mid-size companies have been badly hit, it tells on the industry growth rate as a whole.
“Small companies serve small or mid-size clients, who are the first ones to cut costs in a negative environment. Moreover, smaller IT firms have less negotiating power when it comes to reprising of contracts with customers,” he said.
Source : Business Line