Near-term uncertainty for Indian IT cos as Britain leaves EU

Britain's exit from the European Union will mark a phase of uncertainty for the USD 108-billion Indian IT sector in the near-term, industry body Nasscom today said.
However, in the longer run it will be a mix of challenges and opportunities as the UK would seek to compensate for loss of preferential access to EU markets.
Europe is the second largest market for Indian IT-BPM industry, constituting almost 30 per cent of the sector's export revenue of about USD 100 billion.
The UK plays a key role within this market. In addition to representing a large share of Nasscom's members' activity in Europe, many use Britain as a gateway for further investment across the European Union.

"Likely decline in the value of the British pound, which could render many existing contracts losing propositions unless they are renegotiated," Nasscom said.
The uncertainty surrounding protracted negotiations on the terms of exit and/or future engagement with the EU could impact decision making for large projects, it added.

TCS didn't comment on the issue, while Infosys said it is in the silent period.
Indian IT companies may also need to establish separate headquarters/operations for the EU that may lead to some disinvestment from the UK and skilled labour mobility across EU and the UK could be impacted as a result.

"Nasscom urges policymakers 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," Nasscom President R Chandrashekhar said.
He added the initial commentary from policymakers in the UK indicates their commitment to minimise the possible negative impact of this referendum.
In the long-term, however, Brexit could lead to strengthening of India-UK economic relationship as the country seeks to compensate for loss of preferential access to EU markets, Nasscom said.
With existing 800 Indian companies employing 1,10,000 individuals in the country, a deeper partnership with India will be in Britain's interest.

Also, now the UK would be under no obligation to adopt
restrictive EU data localisation norms, which it does not subscribe to in their entirety. All these factors could benefit India-UK bilateral economic relations, Nasscom said.
"Nasscom will continue to foster, to the extent possible, the strengthening of the UK-India and EU-India relationships, and this is especially the case in the areas of technology trade and all related aspects including mobility of highly-skilled workers," Chandrashekhar said.
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Further, IT major Wipro said it watches with "deep interest" the unfolding developments in theUnited Kingdom and its potential impact on a host of factorsincluding mobility of labour, 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 committedto the UK and are optimistic that the close ties between India and the UK will further strengthen in the long run and open upnew opportunities for us," the Bengaluru-based firm said in a statement.
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Gartner Research Director Arup Roy said the impact of Brexit is expected to be slightly negative in the shorter term, or about 6 months.
"The uncertainty might impact the discretionary spending in the BFSI segment. Consulting and system integration might take a hit. The magnitude will defer depending on the exposure levels," Roy said.

He said that companies like Tech Mahindra, Cognizant, TCS and Wipro are likely to be impacted but HCL may be impacted less as it has bigger exposure to Nordics, Germany market.
"Also, currency fluctuations on account of pound may have an impact. Contracts might have to be renegotiated. In the longer term, the compliance requirements may throw up new opportunities," Roy said.