If you are not able to view the ppt of " what is subprime crisis????" placed at the bottom of the blog please open the given website.....
http://docs.google.com/Presentation?id=dgnh42dx_08qx28zdn
mahesh jakhotia
Friday, June 6, 2008
How the U.S. sub prime crisis will affect India?
India has been growing at a fast rate from few years. GDP growth rate has been above 8% in the recent years. One of the major contributors to GDP is the Information Technology industry. In other words, this contributor is also called services sector.
The fallout from the U.S. sub prime crisis is crossing oceans and some of it has already landed on India’s shores, touching India’s most established IT and business- service providers. Providers whose clients include mortgage lenders that scaled back or gone out of business are feeling a direct hit. The largest service providers aren’t in big trouble, but some small providers, many of which counted on serving sub prime lenders for much of their revenue, have lowered their earnings forecasts. But there is a potential indirect hit that is much more troublesome: Indian providers of all sizes still depend largely on U.S. companies and organizations for much of their business, despite of their attempts at geographic diversification over the years. So if the sub prime crisis takes the wind out of the U.S. economy, service providers’ revenues will suffer dramatically.
If clients in the U.S. and else where stop their expansion plans, the spending on IT projects drops. The chances of Indian providers growing by providing innovative products are severely restricted.
Further, a slowdown in the U.S. economy will weaken the dollar against the Indian rupee and that increases the pressure on the service providers who get their revenues in dollars and where in their spending is in rupees. Some service providers are trying to offset this risk by increasing the price for newly taken contracts and restructuring the existing contracts. But it is possible that they will be able to negotiate the price increases in a highly competitive market, if the sub-prime induced recession occurs.
But here is the other side of the situation. If at all there occurs a recession in the U.S. economy, the country will look for ‘low-cost’ services and India will be seen in the first few places definitely. This could help the service providers get more contracts but at low prices compared with non-recession situation. This is just an assumption. Even if this kind of thing happens, not everybody gets the benefit. Only those highly reliable, low-cost providing and innovative service providers get these opportunities.
The fallout from the U.S. sub prime crisis is crossing oceans and some of it has already landed on India’s shores, touching India’s most established IT and business- service providers. Providers whose clients include mortgage lenders that scaled back or gone out of business are feeling a direct hit. The largest service providers aren’t in big trouble, but some small providers, many of which counted on serving sub prime lenders for much of their revenue, have lowered their earnings forecasts. But there is a potential indirect hit that is much more troublesome: Indian providers of all sizes still depend largely on U.S. companies and organizations for much of their business, despite of their attempts at geographic diversification over the years. So if the sub prime crisis takes the wind out of the U.S. economy, service providers’ revenues will suffer dramatically.
If clients in the U.S. and else where stop their expansion plans, the spending on IT projects drops. The chances of Indian providers growing by providing innovative products are severely restricted.
Further, a slowdown in the U.S. economy will weaken the dollar against the Indian rupee and that increases the pressure on the service providers who get their revenues in dollars and where in their spending is in rupees. Some service providers are trying to offset this risk by increasing the price for newly taken contracts and restructuring the existing contracts. But it is possible that they will be able to negotiate the price increases in a highly competitive market, if the sub-prime induced recession occurs.
But here is the other side of the situation. If at all there occurs a recession in the U.S. economy, the country will look for ‘low-cost’ services and India will be seen in the first few places definitely. This could help the service providers get more contracts but at low prices compared with non-recession situation. This is just an assumption. Even if this kind of thing happens, not everybody gets the benefit. Only those highly reliable, low-cost providing and innovative service providers get these opportunities.
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