Top India IT outsourcers worry about Euro debt

DAVOS, SWITZERLAND: India's top two IT outsourcing firms Tata Consultancy Services and Infosys worry that Europe's debt crisis and rising inflation at home could slow the growth that they have enjoyed in recent years.

In interviews with Reuters at the World Economic Forum in Davos, the chief executives of both companies said business remains good in 2011, but in the longer term, debt could hurt their profits.

Infosys Technologies, India's No. 2 software exporter, sees the debt crisis sweeping across Europe as its top concern. It is hurting the company's clients and could have wide-reaching impact on its growth this year.

"The top concern is Europe," Chief Executive Kris Gopalakrishnan told Reuters. "Although we can't do much about it, we can actually increase our footprint and get more customers."

The worries are set against a global backdrop of optimism in tech spending in 2011.

Technology executives attending the annual gathering of the world's power elite struck a confident tone owing to a big push into cloud computing, which uses Internet technology to move computers and information away from desktops and into remote data centers, and the rapid growth of mobile computing.

Still rising commodities costs such as food prices, have pushed inflation in the region higher. Companies have worried about rising wages and production costs because of inflation. Some foreign and domestic companies have passed the costs to customers.

India's high inflation prompted the central bank to raise interest rates by 25 basis points this week, the seventh time since March.

"Inflation is a worry," said TCS CEO N. Chandrasekaran. "If it continues to be bad, it will hurt the growth of companies (such as) retail markets, which will translate to less spending. That will come back to bite us."

But, he said, "That is not something that will have an immediate impact on our business."

Several Indian tech exporters including Wipro reported a disappointing year-end quarter, raising concerns that a shakeout loomed. This week, executives said it was too early to tell if it signaled further caution.

Margins, which range from 20 to 25 percent, have been pressured because of intense competition in the fragmented business.

Recruting arms race

TCS and Infosys, along with smaller rival Wipro, are on a hiring spree and have lifted pay by 20 percent.

"We need people for growth," Gopalakrishnan said.

Infosys, which counts Goldman Sachs, BT and BP among its clients, plans to hire 25,000 new employees this year to cater to new mobile and cloud computing services. It currently employs 127,000.

TCS, whose clients include Citigroup and General Electric said it could hire as many or slightly less than the more than 50,000 it hired last year.

However, neither company expects to buy rivals to boost scale, citing high valuations. "Our portfolio is wide and deep," Chandrasekaran said. "We will not be acquiring."

Chandrasekaran said the company could be interested in pursuing companies that provide new intellectual property or a capability it does not possess.

Infosys shares were down 0.68 percent and TCS shares fell 1.38 percent on the Bombay Stock Exchange.