Two TCS top 10 clients defer deals

THE waves from the US subprime tremor have reached Indian shores through yet another route. Two Wall Street giants, which are among the top 10 clients of India’s largest software exporter Tata Consultancy Services (TCS), have postponed their ‘committed engagements’ with the company for the quarter, TCS officials said.The company declined to name the clients, but most analysts that ET spoke to believe that they are Citigroup and Merrill Lynch. The two together have taken a knock of more than $41 billion due to subprime-related losses and are likely to announce more write-downs. The names could not be confirmed independently.Their decision would lead to ‘‘some impact’’ on TCS’ financials, but the same clients were ramping up business in other areas, chief operating officer N Chandrasekaran said. ‘‘There could be de-growth in the accounts that have been scaled down, leading to short-term weakness,’‘ said one analyst who did want to be quoted.The impact of the postponement has already been factored into the TCS valuation and no further re-rating in its share price is expected, an analyst said. Other top-tier IT firms have not indicated any project postponement so far, but in such an eventuality, valuations could fall by another 10%, the analyst said. On the other hand, the upside potential for valuations in the sector is expected to be as high as 30%.‘‘Overall, no cut is expected in offshoring spend. So it is positive for the long-term. There will be re-rating of the sector, but it will be gradual,’‘ said another analyst with a foreign brokerage. The BSE-IT index has lost 300 points, or over 7%, in the last one month. Among the top-tier companies, some believe that TCS, Infosys and Cognizant Technology Services could be more susceptible given that many of their large clients are from the financial services segment as compared with Wipro, Satyam Computer Services and HCL Technologies.‘‘Some IT companies also had an active client mining strategy to get a higher percentage of business from a single client. This has worked against them. Satyam, Wipro and HCL Tech are better placed in this regard because they have more number of smaller clients,’‘ said one analyst.