Shares of major information technology (IT) companies were trading lower in the early trade on Friday after a report said IT outsourcing contracts of more than $1 billion currently executed by Indian companies are at risk of termination because Boeing has halted the production of its flagship Boeing 737 Max jets with effect from January.
At 09:30 am, Tata Consultancy Services (TCS) was trading 0.6 per cent lower at Rs 2,188 apiece on the BSE while Cyient slipped nearly a per cent to Rs 405. HCL Technologies was trading flat with negative bias at Rs 560, down 0.14 per cent and L&T Technology Services was at Rs 1,488, up 0.27 per cent. Infosys too was trading 0.1 per cent higher at Rs 730. The S&P BSE Information Technology index was trading 0.18 per cent down at 15,520 levels. The benchmark S&P BSE Sensex was trading over 100 points or 0.26 per cent up at 41,272 points.
According to the report, firms such as TCS, HCL Tech, Infosys, Cyient, and L&T Technology Services have direct exposure to Boeing or its suppliers’ ecosystem, which comprises engine manufacturers, body suppliers, and avionics providers.
“Boeing figures on the top ten list of many Indian service providers. So, those players will definitely be affected in the short run. But the larger issue is if Boeing is hit, overall spending in the aerospace segment will also come down,” said Pareekh Jain, an IT outsourcing advisor and founder of Pareekh Consulting. READ MORE
According to estimates, the aerospace engineering outsourcing market worldwide is estimated at close to $4 billion per year, which is equally contributed by Boeing and Airbus. Of the $2 billion of IT works outsourced by Boeing, Indian service providers get mostly half the deals every year.
Among the global service providers, Accenture and Capgemini lead the list.
“Usually outsourcing contracts have safeguard clauses, which are likely to protect IT firms from losses (in the case of termination). But, profitability will definitely be hit in the short run,” the report added quoting Sanchit Vir Gogia, founder and CEO, Greyhound Research, as saying.