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Analysts see bigger deals for India software firms

Indian software firms, emerging from a two-year slowdown, seem poised to grab significant long-term outsourcing contracts, marking a shift from shorter projects billed by the hour, industry analysts say.

"There are customers coming to India in what seems to be a bigger intention to outsource their technology requirements," said Girish Pai, vice president at SSKI Securities.

For years, demand for Indian software boomed and no need was seen for the certainty of long-term contracts.

But the global tech slowdown means diversification and long-term software maintenance deals. These involve taking over client software work and are seen as a way out of volatility.

Two weeks ago, stock in Wipro spiked 25 per cent in less than a day on market talk that it had won a $200-800 million multi-year deal from a US soft drink maker.

Wipro denied the speculation but the stock has remained firm, climbing 6 per cent to Rs 1,283 since September 6.

Analysts say Infosys and Wipro, India's second and third largest software service exporters after privately held Tata Consultancy Services, are set to enter a bigger league.

Indian firms that have deep ties with offshore clients such as Citigroup and General Electric, have emerged as diversified white-collar service firms, adding ongoing back-office technology management to low-cost software coding. Infosys and Wipro each employ more than 10,000 engineers.

"We are unlikely to see a half-a-billion dollar deal coming in soon but you will see Indian firms expanding services and participating in long-term contracts," Bhupinder Ahuja, analyst at Deutsche Securities, told Reuters.

Analysts say tech outsourcing leaders like IBM and EDS, under pressure in depressed markets, could team up with Indian firms to keep down costs.

India's software export growth, aided by low staffing costs, slowed to 29 per cent at $7.5 billion in the year to March 2002, after jumping more than 50 per cent a year in the late 1990s.

In the past, contracts have typically been around $25-30 million per year and big deals have been rare.

Two years ago, India's fourth largest software exporter, Satyam Computer Services, signed a $200 million long-term deal with satellite-maker TRW.

However, Satyam senior vice president K Thiagarajan told Reuters that long-term deals are spaced out over years.

Indian companies have a long way to go to catch up with the likes of EDS, IBM and Computer Sciences Corp. These have annual sales of billions of dollars while no Indian software company has an annual revenue above around $900 million.

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