Indian outsourcing groups prepare to stage comeback

By Andrew Hill, Joe Leahy and Richard Milne

Published: November 19 2008 02:00 | Last updated: November 19 2008 02:00

The clouds of global recession may be just gathering for many Indian industries. But one sector that has already been in the line of fire for more than a year is the country's information technology outsourcing sector.

Last year, the industry leaders, such as Tata Consultancy Services, Infosys Technologies and Wipro, were blasted by an appreciation of the rupee against the dollar, as foreign investors rode a wave of cheap liquidity to buy Indian stocks.

The stronger rupee made it more costly for Indian outsourcers to provide services to offshore clients, eroding margins that are among the highest in the IT industry.

This year, the rupee has depreciated nearly 20 per cent, restoring their foreign exchange advantage. But the collapse of some of the industry's largest clients in the developed world is hurting the prospects of the leading outsourcers.

This has been reflected in their stock prices, which are down by more than half from their 12-month highs, compounding losses last year. But Indian outsourcers such as Infosys are holding tight. There are no mass lay-offs and many are using the opportunity to train their young workforces.

They know that if they can survive the initial wave of the downturn, clients will once again turn to them to cut costs.  (If concerns are only about turning a profit, perhaps they should consider outsourcing to China, or the Philippines.  There is cheaper labor out there....)