Analyst sees slump in offshore IT sector bottoming, but upturn not yet visible

Monday, August 24, 2009

Analyst sees offshore IT sector slump bottoming

A Wells Fargo analyst upgraded the offshore information technology and business process outsourcing sector on signs that its business slump may be bottoming.

Jennifer Fritzsche raised her rating on the sector to “Market Weight” from “Underweight.” While cautioning that a business upturn is not yet apparent, she said there are signs the market is stabilizing especially in financial services as well as the North American market.

She cited anecdotal comments that point to a tick up in demand, although companies remain oriented towards short-term purchases with an eye towards keeping costs down.

However, prices seem to have bottomed out, Fritzsche said in a research note.

Leading companies in the sector have strengthening balance sheets, with “significant” net cash holdings that provide a buffer against the unknown, Fritzsche said.

Still, the analyst expects the economy to recovery slowly and thus revenue growth for the top offshore IT providers will take longer to rebound as well.

“While we seem to be past the near-death experience of this past winter … a return to normal, pre-downturn pace, is unlikely before mid-2010, or later,” Fritzsche said.

Shares of Cognizant Technology Solutions Corp. rose 39 cents to $34.85 while ExlService Holdings Inc. fell 14 cents to $12.54. Genpact Ltd. declined 23 cents to $12.80.

Infosys Technologies Ltd. shares advanced 28 cents to $42.53 and Syntel Inc. jumped 69 cents to $39.68. Wipro Ltd. shares rose 3 cents to $15.50 and WNS Holdings Ltd. slid 51 cents to $15.04

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