TCS, Infosys, Wipro set to face Brexit music; here’s why

The $150-billion Indian IT industry may have to experience short-term pains like delays in getting new contracts or dealing with a fluctuating currency but in the long term it stands to benefit from UK’s decision to exit from European Union. In the medium to long term, as UK tries to find its economic feet, its firms will have to continue to find ways to remain competitive and hence seek additional outsourcing expertise.

The immediate impact for the Indian IT companies would be from the banking, financial services and Insurance (BFSI) segment as London is a financial hub and the current uncertainty would only delay new contracts. Arup Roy, research director, Gartner said in the short term — next six months — the situation may become difficult as some clients may exercise restraint.

Another worrying factor will be the movement of the British pound. As most of the Indian companies also report their numbers in US dollars, a depreciating pound will have a positive impact on the topline but the bottomline will have to take a hit. Said V Balakrishnan, the former Infosys board member, “If the UK pound depreciates much higher than the rupee-dollar rate, there could be an impact.”

The United Kingdom has always remained the second biggest market for large Indian IT companies, accounting on an average 25% market share. Software companies like TCS, Infosys, Wipro and HCL Technologies all have considerable presence in the UK. Companies like TCS have about 11,000 people in UK while Wipro has around 4,000. Europe as a whole constitutes almost 30% of industry export revenue of about $100 billion.

According to Indian IT industry’s trade body, Nasscom, the uncertainty will impact decision making on large projects which could affect Indian IT firms.

Further, the falling value of British Pound could render many existing contracts becoming losing propositions. Nasscom president R Chandrashekhar said, “Nasscom urges policy makers in Brussels and London to provide greater clarity and guidance on the next steps as soon as possible, so that our businesses have the certainty they need to continue to invest in UK and Europe.”

Infosys CEO Vishal Sikka said, “We are watching this situation closely. There could be small short-term effects on currency and also potentially on business. These kinds of things have an effect on business from time to time but if you have a strategy that is based on innovation… when the times are bad people need innovation.” These comments were made during the Infosys AGM.

UK remains an important market for the Indian IT sector as it also serves as gateway for continental Europe with EU regulations allowing easier cross border movement of professionals.

Sanjoy Sen, Doctoral Research Scholar, Aston Business School, UK, said, “Indian IT companies with significant operations or subsidiaries in the UK are likely to be most impacted by the Brexit decision. This impact is likely to take the shape of enhanced uncertainty over their ability to seamlessly access and deploy teams across European markets.”

A statement from Wipro said, “Wipro watches with deep interest the unfolding developments in the United Kingdom and its potential impact on a host of factors including mobility of labor, changes in the financial system, and the currency. Wipro has been present in the UK for over two decades and today employs over 4,000 people there. We remain committed to the UK and are optimistic that the close ties between India and the UK will further strengthen in the long run and open up new opportunities for us.”