Little first-quarter growth seen for India outsourcers, recovery hopes fade

By Harichandan Arakali

BANGALORE (Reuters) - Uncertainty about spending by U.S. and European clients in a weak global economy will likely weigh on the earnings of Indian outsourcers, dampening hopes that demand will pick up in the second half of the year.

India's $100 billion-a-year information technology and back-office outsourcing industry earns about three-quarters of its revenues from customers in the United States and Europe.

Analysts expect No.2 ranked Infosys Ltd., the only top-three vendor to provide a full-year forecast, to pare its revenue growth estimate for the current fiscal year to as low as 5 percent when it posts quarterly earnings on July 12.

The company in April had forecast 8-10 percent growth for the fiscal year ending March 2013, already disappointing investors enough to cut 13 percent of its market value on the day. It has gained about 2 percent since.

The National Association of Software and Service Companies, or NASSCOM, an industry lobby, expects the industry to grow exports by 11-14 percent in the current fiscal year that ends in March.

Customers continue to hold back discretionary spending due to the extended euro-zone crisis and the absence of unequivocal data that an economic recovery is under way in the United States, the Indian providers' biggest market.

"Hopes of a recovery in the second half are just that, hopes," said Apurva Shah, head of research at BNP Paribas Mutual Fund, which manages investments of about $750 million, including in the top Indian IT companies.

Due to the continued uncertainty in the demand environment and discretionary spending not coming through, the fund was "underweight" on the sector, Shah said.