Indian IT biggies can withstand demand uncertainty: S&P
Credit rating agency Standard and Poor's (S&P) on Monday said top three Indian IT companies – Tata Consultancy Services, Infosys and Wipro -- are likely to maintain their investment grade ratings even if demand weakens.
Mumbai: Credit rating agency Standard and Poor's (S&P) on Monday said top three Indian IT companies – Tata Consultancy Services, Infosys and Wipro -- are likely to maintain their investment grade ratings even if demand weakens.
"The largest Indian IT companies have strong margins, are cost-competitive, and have proven delivery models. These attributes will help them to weather uncertain and volatile demand," S&P's Credit Analyst Abhishek Dangra said about the three firms.
S&P has given TCS and Infosys BBB+ and Stable rating, while Wipro holds BBB and positive credit rating.
S&P report said that the three leading IT companies will be able to grow at a faster pace than the global industry, at least over the next few years.
It expects these companies to maintain industry-leading EBITDA (indication of cash flow) margins and grow in double digits in the next 12 months.
"Bigger challenges for the Indian IT companies will occur in the long-term. We expect the cost advantages of these companies to diminish as foreign competitors increase their already-large employee bases in India," a S&P statement said.
The agency said business and reputation risk is rising due to increasing protectionism and it expects the three Indian IT companies to adapt to the challenges, as they have in the past.
On dependency of IT companies on the slowing economies of the US and Europe, it said sovereign budget cuts across these markets could hurt business sentiment and lower private-sector IT spending.
The agency, however, added that deal cancellations would not have as much impact as in 2008-2009, and the time it takes to close deals has lengthened.
Dangra said high unemployment rates, slowing growth and political activism in many countries are generating opposition to outsourcing.
"Still, we expect focus on cutting costs in a slowing global economy to support demand for outsourcing to India. Such a practice results in significant cost savings," he added.