Global Market fluctuations affecting the Indian IT Sector

Posted in Finance Articles, Total Reads: 2782 , Published on 13 August 2011

The Indian IT sector had been growing by leaps and bounces in the last decade of the 20th century. India became the IT hub of the world, with all major European and American multinationals investing and outsourcing to India. The growth in the IT sector has been steadily creating jobs for people, creating global opportunities, raising the standard of living and contributing the growth of the GDP. But there is another side of this fairy-tale story. Constant market fluctuations and variable market conditions in the western countries has a direct effect on the functioning in the IT sector.


Recession and IT

Unlike the economic slowdown in 2008, the market this time is far more prepared to face the challenges since the recent US ratings downgrade. With the cuts in public-spending by the US Government, the overall growth of the private sector will be adversely affected especially in the emerging economies. And as an ill-effect of globalization, the interlinking of economies has a dominoes effect where if one economy faces a turbulent time, it has a cascading effect on all economies.

Since almost 80% of the Indian IT Sector’s revenues is dependent on US & European companies and only 20% on the local companies, it will be the worst affected. After the 2007-09 global financial crises, emerging markets like India were the worst hit. Top Indian IT giants too felt the pinch but they were too big to fall apart. But the smaller IT companies were down-sized substantially as their clients in the West had to cut costs on out-sourcing. BPOs too had suffered heavy losses which led to problems of layoffs and cut on salaries in the entire market and industry.

Once again the Stock Exchange crashed, bringing down share prices and causing havoc in the Indian economy. Gold and Silver prices too escalated without looking back. In spite of this, instead of investing in stocks, which are available at an all time low, now people are again buying Gold and Silver to save for the rainy-day. Some experts are of the opinion that one can safely invest at regular intervals, in mutual funds or equities but spread over a period of time. Day to day speculation is best avoided in a fluctuating market and one should go for long-term investments only.  Similarly, Fixed Deposits can also pay well and give good returns in the long term. The reason, they say is that at the time of maturity, the economy will emerge again and will be stable.

In the present day scenario, again the Indian IT Sector will have to bear the brunt of the recent challenge but if all goes well and positive, the West will again look for cheaper market for outsourcing in the Indian IT Sector. Despite being an irreplaceable sector, the IT industry in emerging economies would always feel the tremors of the market fluctuations but would again rise to take its undisputed important position.


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