Slowdown in US growth unlikely to impact Indian IT Cos: UBS

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Slowdown in US growth unlikely to impact Indian IT Cos: UBS

Trideep Bhattacharya of UBS says that they are looking at a mild slowdown in US growth rates. He adds that a mild slowdown in US growth rates is unlikely to impact Indian IT companies.

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A recent poll by the US CIO magazine that forecast that US tech spending might actually be slowing down. Technology is not doing bad but that's been a space which has got knocked off a little over the last few days.

Although it is strong today, there are concerns that the US slowdown might actually scar earnings growth, revenue growth for many of these frontline Indian technology companies.

Trideep Bhattacharya of UBS says that they are looking at a mild slowdown in US growth rates. He adds that a mild slowdown in US growth rates is unlikely to impact Indian IT companies.

Con Colovos of the CIO Executive Council, says that Australian Chief Information Officers, CIO, and Chief Technology Officers, CTO, see steady-to-higher IT spending.

He also shares a similar belief with Bhattacharya about the effects of the US IT situation when he says that he is not sure that spending in the US will affect India and Australia.

Excerpts from CNBC-TV18's exclusive interview with Con Colovos and Trideep Bhattacharya:

Q: In which specific area was a slow down indicated in your poll from the Chief Technology Officers, and was there any take on outsourcing and whether that might slow down as well?

Colovos: I don't believe that what is happening in the US is actually affecting here in Australia. In that respect, the CIOs, CTOs that I am speaking to here in Sydney are actually talking about a steadiness or increase in spending over the next 12 months.

So from our perspective in Australia, there will be stability in spending, there will be no decline. There will an increase in certain areas especially around the replacement of the legacy systems within organizations of medium to large size.

Bhattacharya: We actually conducted a study in terms of understanding where exactly one should be concerned as regards IT spending. We found that there are two stages of spending related concerns if at all any.

The first stage is when the overall growth in the US GDP comes down in a gradual manner, and second is when the GDP growth rate goes into negative, which is a sharp slowdown scenario.

We found that in the first situation, the growth rates of the Indian IT services companies do not have any major impact. When growth turns into negative that is when we saw that the volume growth of the Indian IT services companies getting impacted meaningfully.

So our study indicates, and UBS' view on the US economy, is that we are looking at a mild slowdown in the US. That is mild slowdown in terms of growth rates.

As long as that happens, cost cutting will be at the forefront, companies will be keener towards outsourcing, and these companies are unlikely to face a significant impact on the volume growth rate. That's what our study indicates.

If the situation goes from bad to worse, which definitely is not in our forecast, then we will have something to worry about. But as things stand as of now, what UBS is saying globally, is that we don't see an impact coming through in a major manner for the Indian IT services companies as far as growth is concerned.

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