SHARES in leading Indian outsourcers such as Infosys Technologies and Wipro fell today after one of their clients, Nortel Networks, filed for bankruptcy.
Analysts said Nortel’s work contributed only a small portion of revenue for the outsourcers, but the news dealt another blow to the export-driven companies that have seen their growth slowing sharply as a global economic turmoil crimped demand.
By 0718 GMT, shares in Infosys, India’s second-largest software services exporter, were down 5.2 per cent at Rs1,237 ($25/£17) after having fallen as much as 6.1 per cent, in a Mumbai market down 3.5 per cent.
Number three exporter Wipro was down about five per cent at Rs231.80 ($4.70/£3.20), after having shed as much as 10.5 per cent, while the sector leader Tata Consultancy Services (TCS) dropped 5.8 per cent to Rs507.20 ($10.34/£7).
North America’s biggest telephone equipment maker filed for credit protection yesterday hoping to save a once highflying business whose decade-long decline has accelerated with the global economic crisis.
Analysts at JP Morgan wrote in a report that the Nortel move could “potentially impact” Tata Consultancy, Infosys and Wipro as they work with the telecom equipment maker.
As per Chapter 11 filing of Nortel, both Infosys and TCS have trade receivables worth $2.9m (£1.97m) each, while Wipro has receivable worth $3.1m (£2.1m), JP Morgan said.
“Wipro could see business decline from Nortel, but we would expect the overall impact to be small. For Infosys and TCS, we believe the EPS impact would be even lower,” it said.
Officials at the Indian outsourcers were not immediately available for comment.
“While Nortel bankruptcy itself should not have a significant impact on the financials of TCS, Infosys and Wipro, we believe it is a concern for the Indian IT sector as it reflects the weak health of the telecom OEM sector,” JP Morgan said, referring to original equipment manufacturers for telecom firms.
The brokerage said Wipro, with 10 per cent exposure to telecom equipment makers, could be hurt more than TCS and Infosys.
