Indian It Outsourcers Want A Bigger Byte Out Of Europe

Take our geography quiz. After several years of economic crisis, analysts have recently begun to see signs that Europe has turned the corner into recovery. Although economic growth in the 17-member eurozone is expected to shrink 0.4 percent in 2013, after a 0.6 percent decline in 2012, the International Monetary Fund said on Tuesday that the eurozone is expected to grow 1 percent in 2014. Though such figures are modest, they are actually up from earlier expectations, and have translated into improving consumer sentiment and spending. According to IMF predictions, all three of Europe’s top economies France, Germany, and Britain will see growth. France is expected to see token improvement in 2013 and 2014; Germany should grow 0.5 percent this year; and the British economy is forecast to grow 1.4 percent in 2013 and 1.9 percent in 2014. But that would certainly change if House Republicans and the White House fail to reach an agreement by Oct. 17 on raising the debt ceiling, and the US Treasury becomes unable to raise more cash. More on world impact of US debt default: US debt ceiling: the wary view from Mexico The European economy is inherently exposed to effects from across the Atlantic, because is financial sector and that of the US are closely intertwined. The US is Europes second biggest trading partner,” says Mr. Wall, and “there is a strong degree of correlation with US financial sector.” But additionally, a US default would strike at the engine of the European recovery: European exports to the US. A weakened US dollar makes European exports more expensive, undermining the regions competitiveness, just as year of painful adjustments are starting to pay off. If it comes to a default, however unlikely, for sure the recovery would be at stake. It would be such a huge shock that European risk premiums would rise again massively, says Matteo Cominetta, a London-based European economist with HSBC.

Western bank retreat clouds emerging Europe’s recovery -IMF

market and eager to diversify, have intensified efforts to crack continental Europe in the past three years through acquisitions, setting up operations on the ground and hiring locally. The push into Europe comes as Indian IT vendors face uncertainty in the United States, where more restrictive rules that could drive up the costs of sending workers there on short-term visas are being debated as part of an immigration law overhaul. The rise in revenue from Europe is likely to be reflected when earnings season for the sector kicks-off on Friday with no. 2 player Infosys Ltd’s (INFY.NS) results. NelsonHall, an outsourcing advisory firm, expects the four top Indian vendors and U.S. rival Cognizant Technology Solutions (CTSH.O) – which has three-quarters of its staff in India – to see overall business in Europe grow about 16 percent this year. It expects 12 percent growth in the United States. Europe accounts for roughly one-third of revenue for India’s $108 billion IT services industry, although Britain has long made up the bulk of that share. In continental Europe, Indian IT firms are making their deepest inroads in northern European countries where English is widely spoken. However, language barriers and tight labour rules mean Europe is yet to surpass even Britain as a revenue source for Indian IT firms, which are expected to rely on acquisitions to build up their offerings in big markets such as France and Germany. India is also not yet compliant with a European data privacy directive, which limits some of the work that can be moved to the country. “Europe has been a very conservative market compared with the U.S.,” said Sharat Kumar, head of delivery for Europe at No. 5 Indian player Tech Mahindra (TEML.NS), whose European clients include food giant Nestle SA (NESN.VX) and aerospace firm EADS (EAD.PA). “The customers are conservative in starting the initiative, but once they do, these are the customers that don’t just go back and forth or drop it, so what we’ve seen is that there is a lot more stability in the European customer,” he said. For European companies, many of them battered by a prolonged economic slowdown, Indian IT firms offer cost advantages to using local vendors or doing the work in-house.

But faced with pressure from within the euro zone to boost their capital positions, many have been pulling back from emerging Europe, and they accelerated that withdrawal in the first quarter. “Deleveraging is continuing and there is a risk that it could accelerate again,” Roaf said, adding that countries in south east Europe were most at risk. Serbia laid out painful spending cuts on Tuesday, as it looks to a deal with the Fund early next year to reassure investors and cut borrowing costs. Roaf said the IMF was “ready to support (Serbia)… in any way that suits”. HIGHER FORECAST FOR POLAND On Poland, the region’s biggest economy, Roaf said the IMF would soon raise its 2014 economic growth forecast to about 2.5 percent from 2.2 percent now as investment was picking up and exports had been doing well. But the new forecast would already be close to the potential growth rate at which Poland’s economy can expand without creating imbalances. This is much lower than the 4-5 percent registered before 2008 and unlikely to be enough to bring down the 13 percent unemployment rate, denting 37-million-strong nation’s aspiration to quickly close the wealth gap with its Western counterparts. The IMF official said structural reforms to make the business environment more investment-friendly could help speed up growth, but this was something countries had to work on. The slower potential growth rates across the region were mainly a result of slower growth in western Europe and sharply reduced investment flows. “Slower growth points to more problems with employment going forward. Also fiscal problems”, Roaf said. In an effort to reduce its debt and close a budget gap, Poland is transferring to the state a large portion of the assets held by state-guaranteed private pension funds. Roaf said the overhaul, which provoked protests from some leading economists and players in the market, did not undermine the sustainability of public finances.

Europe Stock-Index Futures Little Changed on U.S. Impasse

in London. Contracts on the U.K.s FTSE 100 Index dropped 0.2 percent. Standard & Poors 500 Index futures climbed 0.4 percent, while the MSCI Asia Pacific Index added 0.2 percent. European markets are likely to open lower as risk aversion continues on the back of U.S. budget concerns, Stephane Ekolo, chief European strategist at Market Securities in London, wrote in an e-mail. President Barack Obama said yesterday that the U.S. economy risks a very deep recession if Congress doesnt raise the debt ceiling. Obama spoke after he called House Speaker John Boehner to reiterate that he wont negotiate on a government-funding bill or debt-limit increase, said Brendan Buck , a Boehner spokesman. Tentative Steps Still, lawmakers began taking the first tentative steps toward a path to raising the limit even as the rhetoric grew more divisive. Senate Democrats are planning a test vote before the end of this week on a measure that would grant Obama authority to raise the ceiling, probably for a year, unless two-thirds of both chambers of Congress oppose. The Treasury has said that it will exhaust measures to avoid exceeding the borrowing limit on Oct. 17. If that happens, the government will run out of cash to pay all of its bills at some point between Oct. 22 and Oct.

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