The tiny Cyprus, which is grappling with the serious financial crisis, is not a major destination for the Indian information technology industry.
With a population of just 12 lakh, Cyprus is as big as any of tier-II city in India. But the IT industry is watching the developments closely as it indicates the latent trouble in the whole of the Euro Zone and result in a dip in the discretionary spending.
“Overall Cyprus is not good news,” Phaneesh Murthy, Chief Executive Officer of iGATE, told
“My belief is that Europe will be in a recessionary environment over next 2 years. Cyprus and other regions of distress are factored in but what they do will make things better or worse,” he said, asked for his comment on whether Cyprus could impact the Indian IT industry.
Key region
Europe holds the key for the IT industry as it contributes about 25-30 per cent of revenues as against 50 per cent from the US markets.
“Though Cyprus is small, these uncertainties prove that the European economy will take some time to recover and during this recovery, there could be few bumps along the road,” Kris Gopalakrishnan, Executive Co-Chairman of Infosys, said.
B.V.R. Mohan Reddy, Chairman and Managing Director of Infotech Enterprises, said that Cyprus reflected psychological issues as such crises and bailouts led to serious debates in countries such as Germany. It indicated the continued turmoil in the region.
“In the times of uncertainty, people tend to spend less. This, in turn, would have an impact on the industry,” he felt.
“We may see reduction in discretionary spending and will also indirectly impact companies which have exposure in Euro Zone and which have their billing in euro currency specifically companies like TCS or HCL Technologies,” A.K. Prabhakar, Senior Vice-President (Equity Research) of Anand Rathi, said.
“It is a cause of concern as companies will think twice whether to bid for an IT project in troubled zones,” Faisal Husain, Chief Executive Officer of Synechron, said.
Discretionary spend
The discretionary spend will be impacted further due to changes in its tax structure, which was recently announced.
According to Gautam Sinha Roy of Motilal Oswal Securities, Cyprus is a routing centre for offshore investments due to its low tax regime and investments could be affected by the new tax. (This is the tax Cyprus mooted on big accounts that created liquidity problem).