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When the United States sneezes, the world catches a coldso the adage goes. The current global economic slowdown has its epicentre in the United States US, but the contagion is being witnessed in all major economies of the world. Several countries are experiencing rapid contraction in their GDP, rising unemployment levels, and an overall slowdown in the pace of investment activity. What started as a shock in the financial markets has spread to all sectors of the world economy, and the exact depth and breadth of the impact is still unclear. That could prove particularly true for Indias IT/ITeS industry, where the US accounts for the largest shareat over 50%of the Indian software and outsourcing market.

Indias economy has been fuelled by the growth in the technology sector in the recent past. A large part of this growth is dependent on the outsourcing or off shoring of key business processes and software development activity (and related services) by large global corporations and other organizations. Hence, the global slowdown has also affected the business climate within India and the growth rate of the IT and ITeS sector is also experiencing the tremors of the global recession. According to a report published by Deloitte in April, the Indian IT software and services industry, which has seen a CAGR of around 30% over the last three or four years, is now projected to grow at 20%. The revenue contribution from the US clients to the top five Indian IT companies (who account for 46% of the IT industrys revenues) is approximately 58%. Moreover, about 41% of the IT industry revenues in India are estimated to be from financial services, states Deloitte. Hence, the impact of the slowdown in the US did affect the prospects of the Indian IT sector. Interestingly, while the Indian economy has been impacted by the global slowdown, the IT/ITeS industry has displayed resilience and tenacity in countering the unpredictable conditions. Moreover, after the US President Barack Obama announced a couple of months ago that the United States may be seeing the beginning of the end of the recession, the Indian IT industry too saw signs of hope. But this came along with traces of caution and scepticism as the president also warned that it would take many more months for the US to get out of recession even after GDP figures for the second quarter were much better than expected, showing the economy shrank only 1% as against an expected 1.5%. The IMF, too, recently announced that The recovery is in sight and is going perhaps to be a little better than what we had at once thought, but we expect a rather muted recovery.

Considering the close link between the US economy and the Indian IT sector, we at Dataquest decided to talk to CEOs of IT companies in India seeking their views on whether the recovery is really in sight? While there was a consensus that the worst is definitely behind us and the economy should be returning to the growth path, the only debate now is over how soon recovery will start and how strong it will be. Analysts, too, are now willing to put a timeline to the pace and extent of the recovery. However, what now worries analysts is whether the recovery will be a W/V shaped a steady climb out of the financial abyssor will it be a prolonged U shaped recovery. Kumar R Parakala, head, IT advisory, KPMG in India says, As a result of better growth rates shown by global economies, the world may be on the recovery path from the recession. By second half of 2010, economies are likely to be back on the growth track, leading to a rise in the spending on IT/ITeS related services. Parakala also adds that the Indian economy showed positive growth of 7.3 % in 2008 and is projected to grow by 5.3 % in 2009. Though Indian IT companies are showing positive signs, the IT market may take longer to be back on track. The Indian IT export market, which had a dependency on some of the developed economies, took a backseat during the recession. But companies are now showing positive results with reduced pressure on billing rate. IT companies are focusing on newer markets as well as newer services to improve the growth. Indias second largest Indian IT firm, Infosys has already shown sequential growth in its dollar revenue in second consecutive quarter since the last four quarters, and the outlook for 2010 also looks positive. With better rates and reduced cost pressure, the market is expected to bounce back within the next two quarters. Gartner too believes that the market will be back on track in the next two to three quarters with the economy growing by 6.5% in 2010. After twenty-three months of negative growth, the recovery will take a V shaped pattern, indicating a steady climb, says Diptarup Chakraborty, principal research analyst, Gartner India.

Visible Trends
While some CEOs were willing to put a timeframe to the revival of markets, there were some who decided to identify trends from their financial performance and their customer behaviour. Almost all CEOs are unanimous about the fact that the recovery will usher in new trends, hence, businesses will have to increasingly align their focus with that of customer industries. According to Forrester, the main trends likely for next few quarters for companies will cover closure in decision-making for outsourcing deals that were in discussion for long; reduced pressure on billing rates; growth of offshoring as during the recession companies have realized that the merits of offshoring as a cost-reduction tool; focus on new geographies such as Latin America, South Africa, the Middle East and Asia-Pacific to reduce the exposure to the US and European markets; and increased focus on Indian domestic market. Parakala says that cost optimization will be the mantra for organizations. During recession, companies have learnt that their financial health could have been better, if right kind of measures were in place. So, companies are expected to continue to optimize costs even in the growth phase that will follow. Outsourcing or offshoring will emerge as an important tool to optimize the costs. Companies having large cash may buy smaller companies to get entry into newer services areas/clients and markets to increase the market share. Experts also predict that companies will also focus on newer generation products/services to cater the market. Lessons from the recession are expected to drive companies to greater innovation and differentiation in the marketplace.

Talking about the recovery driven trends, R Chandrasekaran, president and managing director, global delivery, Cognizant say, There are significant changes underway within the industry and these changes are primarily driven by significant changes that clients are facing in their industries. This is not a time of just cyclical change resulting from an economic slowdown. This is also a time of secular change where many of our clients are now realizing that their businesses and supporting technology environments have to be re-thought and changed dramatically in order to navigate through this period. He also points out that the traditional areas which the offshore industry has considered as key differentiators are no longer differentiators. To clients, this is just table stakes, an entry-point into the game. What clients are really looking for is re-architecting business models and technology footprints to reduce costs and to address the changes in their industries. Sharing similar views, Sudhakar Ram, CEO, Mastek says that markets will make new demands on IT, as companies need their IT applications to reflect the changed business scenario. He foresees the future throwing up a lot more opportunities to transform and modernize legacy systems.

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