Bank of America staff cuts spell good news for Indian IT firms

BANGALORE: Indian IT companies’ recent strong positive commentary on greater demand from their top customers was underscored earlier this week by more sombre news for in-house technology staff at Bank of America Corp.

Even as the Indian companies gear up for increased business from financial clients, their biggest customers, that the demand is still being driven by a strong cost-cutting effort was reiterated by BAC’s news.

The second-largest US bank, widely believed to be one of the largest clients of Bangalore-based Infosys, India’s No. 2 software services provider, was reported to be cutting an undisclosed number of technology jobs, prompting some analysts to say Indian IT firms could benefit.


“The way all these banks are cutting costs, it’s definitely good news for Indian IT, not just Infosys,” said a top official in India at a large multinational financial services company that also outsources IT work.

Banking, financial services and insurance firms, popularly called BFSI firms, account for the single largest chunk of revenue for India’s $108-billion IT outsourcing industry.

They contributed about a third of Infosys’s revenues in the December quarter. Larger rivals Tata Consultancy Services and US-based Cognizant Technology Solutions that has the bulk of its operations in India get an even greater share of their revenues from BFSI clients.

“If Bank of America is looking to reduce cost by laying off their technology staff, then it is a good thing for Infosys as it results in more work being outsourced,” said Pradip Mukherji, president and managing partner of outsourcing advisory firm Avasant. “This way BAC would lay off older employees who are close to retirement and are used to old technologies,” he said.

On a leading-12-months basis, the US bank accounted for more than $300 million in revenues for Infosys last year, an analyst at a large multinational brokerage said. “In absolute terms, there has been some increase and this could be a clue that the work is already coming to Infosys,” the analyst said.

Not everyone agrees: “It's not as simple as that … there’s no one-to-one correlation that one can draw from these things,” said a fund manager at a multinational financial services company.

One of the allegations against the Indian IT companies is that they’ve grown at the cost of US jobs, but the reality is that Indian IT has grown when the environment has improved, the fund manager said.

“If (US) companies aren't doing well, it’s not good for vendors either. Sure, India grows a bit faster because of the value proposition here.” That said, all the recent commentary from the Indian firms have been positive, the fund manager said.

Given that most US corporations would know about their budgets for the year ahead by December, the Indian IT companies would already have some visibility into the revenue they could expect, said Sundararaman Viswanathan, manager-consulting at advisory Zinnov in Bangalore.

This would mean existing contracts would continue as planned, as they are typically longer-term ones and cost-cutting would be internal to customers. What could get affected, however, are discretionary projects.

If Infosys didn’t know about the job cuts at its customer and had not factored that in, then it remains to be seen what happens to the good-to-have, but can-do-without projects, Viswanathan said.

“We do not comment on client specific matters,” Infosys said in an emailed statement.

Customers continued to have a strong focus on cost cutting, Infosys president BG Srinivas had said earlier this month, after the company reported strong December quarter earnings and raised its forecast for the year ending March 2014.

What was different from earlier was that customers were looking a bit more seriously about using some of the savings from cost cutting to fund discretionary projects, Srinivas had said.