Will the Greek crisis impact the Indian IT companies?

MUMBAI, INDIA: As Greece becomes the first ever developed country in history to default to the International Monetary Fund, all eyes are now on the booming IT services industry and the possible impact the `historic event’ would have on the multi-billion dollar Indian IT services industry.

According to Kunal Tayal, Research Analyst, Bank of America Merrill Lynch (BofA-ML), large IT companies in India are likely to see a marginal 1-2 percent earnings impact from the economic crisis in Greece.

This is largely due to their exposure to Europe, while their direct revenue exposure to Greece is practically zero, the report says. The indirect impact however, could come through the Indian IT sector's exposure to Europe and the movement in the euro-rupee exchange rates.

"In our view, a mild impact to Eurozone GDP and a 5 percent depreciation of euro vs rupee results in only a small potential earnings impact for large-cap India IT (1-2 per cent)," Tayal states in the report.

According to the BofA-ML report, large Indian IT companies have predominant revenue exposure to the Nordics (Denmark, Finland Norway, and Sweden), Switzerland and Benelux (Belgium and the Netherlands) within the continental Europe.

Germany and France are still relatively small markets (1-2 percent of revenue), but are on a fast growth curve (especially Germany).

"A shock to GDP outlook of the above sub-markets is what could potentially impact business, given such a scenario resulting in elongated IT sales cycles," Tayal opines.

However, a mild impact on GDP outlook of these sub-markets is unlikely to result in any business impact for Indian IT as compelling cost savings of the global delivery model is a key driver of secular growth in continental Europe, he says in the report.

He mentions that given the deflationary effect of global sourcing and employee restructuring costs, the India-centric vendors are better positioned than incumbent players.

Yet another report in MoneyControl quotes Neeraj Deewan, Director, Quantum Securities saying that volatility in the Indian markets is likely to continue till the Greek referendum followed by some reaction based on the referendum vote.