Industry analysts feel this year, due to the economic downturn, the budgeting for IT spend might get delayed by a couple of months. There will definitely be price revisions. Already CLSA has mentions that it expects a 4% downward revision in Infosys’s billing rates.

As far as spending for new developments and new projects are concerned, the companies might come out with short-term budgeting and review and revise it over time depending on the situation.

As much as 70% of budgeting done by the companies is on the non-discretionary front, and the rest 30% is done for new projects and developments. “The budgeting for non-discretionary stuff is likely not to get affected. However, the IT sector will definitely get affected as far as the new project developments are concerned,” commented Ganesh Natarajan, chairman, Nasscom & global CEO, Zensar Technologies.

Discretionary budgets however, will be cut drastically. Abhiram Eleswarapu of BNP Paribas Securities India mentions in his report, “We expect Indian players will face heavy discretionary spending cuts in FY10 as clients tighten their purse strings given our projections for an impending recession. Indian companies need to quickly broaden their client focus to sustain growth, which we see as unlikely.”

Hence, companies could well take the short term budget route. “During the current market situation, it is highly probable that the clients might come out with short term budgets, and review and revise their spending depending on the situation,” Natarajan added.

The Indian IT companies have already seen new projects getting delayed by the clients during last 4-5 months. However, as most industry experts feel that the economic downturn will go on for the next 6-9 months, the short term budgeting, if happens, will definitely put the companies in a difficult situation. Thus, it is predicted that this year the IT industry will grow at the of 21%-24%, which is 5%-6% slower as compared to last year’s growth rate, which was around 29%.

“This year the growth rate is slower compared to last year. And if companies come out with short term budgeting and delay new projects further, then in the next year, growth will be even slower for the entire industry. However, the intensity of impact will be clearer by early next year, when the budgeting will be over,” commented Natarajan.

However, the analyst feels that FY10 will see a much slower growth rate in revenue in rupee terms compared to FY09 if the top five Indian IT companies are considered.

“In FY09, we have seen revenue growth of 30%-35% in rupee term as far as the top IT companies is concerned. However, due to the current market situation, in FY10 the revenue growth of these companies in rupee term could be around 10%-12%,” commented the analyst. “There are a few sectors that are badly hit during this time, like the BFSI. Thus, such short term budgeting is likely to happen by companies in such sectors,” commented an IT analyst from a top research firm.

It would be difficult for the Indian companies as experts feel that they would not have a complete and clear vision of the volumes that would come to them. In this situation, companies will have to depend on free cash flows to manage costs and expansion plans. An Edelweiss Securities report states, “Free cash flows of the Indian IT sector accrue with rather little stress. In this aspect, Infosys is at the top, converting about 15% of its revenues into free cash flows in times of expansion. Moreover, as Infosys showed in 2002 and 2003, this can show an uptick, hitting 17-18% of revenues in the current turbulent environment, given cutback in growth capex.”

The study further analysed the cash flow situation and its observations suggest that with $1.7 bn free cash flows, Infosys has enough cash to pay its employees for 8-9 months, assuming no additional revenues. Similarly, Satyam has enough cash to pay its employees for about 9 months, assuming no additional revenues. In contrast to Infosys and Satyam, TCS has cash to pay its employees for only three months, assuming no additional revenues. Wipro has cash to pay its employees for 6-7 months, assuming no additional revenues. The report concludes, “Thus, on the basis of safety and cushion, Infosys and Satyam are most comfortably placed, followed by Wipro and India does not want to take any risk on the security matters and thus wants to sort out these issues before moving ahead