Monday, October 06, 2008

Are we heading to global recession and if yes then how will it impact on India IT/ITES industries?

These are some of the questions which I have been thinking since lot of time now. Everyday newspaper is full of updates on how top investment banks/ financial institutions are fading away. Who would have expected that Lehman Brothers would declare bankruptcy? Especially, in India there own people were not aware of this and hence were on target for their aggressive recruitment plans in Lehman brothers.

Some of the big tier 1 service providers in India, have or rather had some kind of investments with Lehman brothers as well. Since, they are the big boys of the market here, they can sustain the temporary impact of this. But, what about other IT companies having strength in the range of 500-5000 people?

First thing first, are we heading for global recession? Most of the people will answer it as ‘Yes’. And looking at some of the events at Wall Street happened recently, it is not wrong. US government has to prepare bail out package for this. This it self says that how bad it is. My gut feeling is that what we are seeing right now is just the tip of the iceberg and worst is yet to come. As Mr. Amartya Sen has said in one of the interviews recently that it might take 3-4 years for the world to come out completely. Also, in terms of percentage it not as bad as it was during the greatest world recession. It could be just 50% if we compare it. Such events will trigger panic among the investment banks, investors, creditors etc. This is a storm rather Financial storm and it will take some time to settle down. It will throw away lot of garbage material which has been piled up so far in the market. As they say, during the storm; it is the best time to fish if you are comfortably positioned. Merger and acquisitions will take place as usual but with better sense.
However, what amuses me is the chain of events. One bank goes down…then second…..then third and so on. Also, combine this with crashing real estate market and oil prices and you will get more amused. Couple of months back, oil has touched almost 150$ and not it somewhere between 60-80$ if I am not wrong. Analysts are predicting that it could even touch as low as 50$. Who knows…….

Now, second thing is how will it impact Indian IT/ITES companies? There will be direct impact on those companies having BFSI vertical and having major presence in the BFSI space. This could lead to cost cutting, workforce reduction rather than keeping on bench, reducing focus on BFSI and narrowing on health care etc. Others who do not have this vertical in their organization will also be hit in some form or other. The impact would not be too high. The onsite companies may want to cut down on IT expenditure just to consolidate their position. This would mean projects in the pipelines could be delayed. The customers will ask for more value for the money they are paying for sure. For all the jumping jacks who keep on changing jobs every now and then; they will have to be patient and be at the right place at the right time. Job market would be driven by requirements purely and not by the HR recruitment targets for sure. Sales people will have hard time in selling the products/ applications/services.

So far, I focused more on the negative part. There would be some positive outcomes as well. As they say in Italian Mafia that every decade there should be a war between the mafia gangs. This makes sure that bad blood is thrown out from the mafia stack. Same theory can be applied to the current situation as well. This happens once in a decade or twice in some cases. It settles down the dust and throws away unwanted particles. This is the law of the nature. We have been seeing lot of Investment bankers recently. Everybody was investment banker. This will stop now and only talent will be available in the market. This could be a boom to the outsourcing as well. Because more you stress on the cost cutting more you have to do the outsourcing. This will also move the focus of the market to products, innovations etc. for sure.

Cheers,
Amol

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