IT sector survives the crash

By Mohini Bhatnagar | 19 May 2004

The new government is expected to continue with IT-friendly policies, feel the markets after its steepest fall ever


The Indian stock markets crashed by 842 points on 1May 17, 2004, wiping out over Rs2 lakh crore worth of market capitalisation under the impact of the statement on disinvestments issued by the Left Front, widely expected to wield enormous influence over the Congress-led alliance at the centre. IT stocks were among the few to survive the bloodbath at the stock markets.

The IT industry as a whole is at present engaged in mitigating the effects of the fall of the Congress government in Karnataka and the Telugu Desam Party (TDP) in Andhra Pradesh, both widely perceived as being IT-friendly.

Nasscom, headed by its president, Kiran Karnik, has been distancing itself from the outgoing regime — and reducing political fallout. Nasscom has been stressing it's apolitical nature and on the fact that the IT sector has received support across the political spectrum, irrespective of who is in power. In Karnik's words, "We are certain that the new government in Andhra Pradesh and Karnataka will continue its strong promotion of the IT industry."

Nandan Nilekani, CEO, president and managing director, Infosys Technologies, is of the view that reforms are irreversible and whichever party came to power, the process of reforms would continue. He also felt that the IT industry had reached a fairly self-reliant stage and would continue to grow. The IT and the BPO sectors have a unique competitive advantage and the new government would provide all the necessary support to the IT industry.

Stability, seems to be the main concern of the captains of the IT industry, and that would continue to support the IT sector both in terms of infrastructure and favourable policies, according to Karnik.

Wipro expects good governance from the new government at the state and centre. A company spokesperson said, "We have no apprehensions that a new government will not implement or continue business-friendly or good governance policies."

In Hyderabad, an emerging IT city, there is some unease among IT companies due to the exit of the TDP. This has mostly to do with the incentives and promises given by the party to a number of Hyderabad-based IT companies.

For starters, the Vanenberg Group, a Dutch technology company which has a major presence in the city with its 20-acre IT infrastructure project, has announced its exit from the project here though it says it would continue to operate in the city. However the company has stressed that it is not exiting the city. The group, which evaluated Hyderabad in 1994 long before TDP came to power, plans to pump in the proceeds from the IT Parks divestment into its software development wing, Cordys Solutions, which it intends taking global in the coming year.

Cordys currently employs 350 people in the Hyderabad centre and could ramp up the number of employees to 1,500 if the business grows well.

Invensys, one of the leaders in management of production and energy resources, which plans to set up a new software development centre at Vanenburg IT Park, Hyderabad. The new facility will host over 130 people working for Invensys Manufacturing and Process Solutions (IMAPS).

A S Dasu, GM, Invensys India Development Centre, said, "True, Chandrababu placed Hi-tech city on the global technology map. The Congress will take it to further heights. But we have to wait and see the message the shift in power has sent to investors and MNCs. With a sizeable number of companies and the talent pool available in the state, Hi-Tech city is likely to see more investments."

He added, "We are going to move to a new 45,000 sq ft-facility, regardless of the government change. All existing commitments are being met and we are expanding, despite apprehensions about the new government policies."

Yash Technologies is another technology major, with a major development centre in the city. According to Vinod Samanthula, general manager, "There may be uncertainty, but Hyderabad has moved beyond the point where every change brings radical policy shifts."

Happily for the IT sector, despite the drastic fall in the sensex on May 14 and May 17 some stocks have managed to buck the downward trend. This includes HCL Technologies, which gained 1.6 percent while Satyam Technologies lost only 1.3 per cent. Other firms with comparatively smaller losses are IGate and E-Serve, BPO companies that lost merely 1.2 percent and 2 percent respectively.

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