TCS sees stability in financial sector

BANGALORE, INDIA:Tata Consultancy Services Ltd, is seeing stability in its key financial services sector and expects demand to pick up this financial year, provided economic conditions do not deteriorate, a senior official said.

India's top outsourcer by sales gets more than 40 per cent of its revenue from banking and financial services clients such as Citibank and American International Group, and turmoil in the sector has sharply slowed its earnings growth.

"From our financial services point of view while the full recovery has not happened, there is stability," chief operating officer N. Chandrasekaran told the Reuters Global Technology Summit in a phone interview from Mumbai on Thursday.

"If we can have continuous three months with no surprises then we can hope that things will be better from that time onwards."

An army of low-cost English-speaking engineers has driven an outsourcing boom in India, but turmoil in global markets and a recession in the United States, which accounts for more than half the sector's revenue, have halted the scorching pace of growth.

The country's $60 billion outsourcing sector, which provides an array of services from software coding to managing computer networks and call centres, face headwinds such as weak demand, cut-rate prices and rising competition from global rivals such as IBM.

"It's difficult to say at this point if the Indian companies have seen the bottom, but I don't expect a substantial recovery in earnings in the near-term," said Tejas Doshi, head of research at Sushil Finance. "We will see muted growth at least this year."

On Tuesday, IBM's Chief Financial Officer Mark Loughridge told the Reuters Global Technology Summit in New York the economy remained tough and it was too early to say if there were signs of a broad recovery.

Drop in staff additions

Indian software services firms such as Tata Consultancy and second-ranked Infosys Technologies are expanding in Europe and elsewhere to cut their dependence on the U.S. market, which accounts for over half the sector's revenues.

Chandrasekaran said Tata Consultancy could see its revenue share from the United States dropping to 40-50 per cent from more than half now, as it taps opportunities in growing markets such as Asia Pacific, Latin America and Japan.

The firm, which provides services such as consulting, system integration and managing call centres, counts General Electric, Lloyds TSB Group, General Motors and French insurer AXA SA among its clients.

Chandrasekaran, who it is speculated could become the chief executive of Tata Consultancy after the retirement of the incumbent later this year, said the firm would make less than 10,000 net staff additions in the year to March 2010, down from 32,000 a year ago.

"I think the hiring rate will come down dramatically, it's not going to be very high for most companies not only this fiscal year," he said. "Even if the market picks up the hiring will be low next year."

Tata Consultancy, part of the Tata Group, which spans services, commodities and auto businesses, last month posted a 4.6 per cent rise in quarterly net profit and said its overseas clients were demanding fee cuts in a tough environment.

The company reported a fifth consecutive quarter of single digit year-on-year quarterly profit growth after seeing a rise of more than 20 per cent in the previous quarters.

Shares in Tata Consultancy, which has a market value of $14 billion, ended down 4.3 per cent at 648.70 rupees, more than a 2.3 per cent drop in the main Mumbai market index and 1.9 per cent fall in the sector index.