One more bad news for Indian call centers and to an extent for IT companies too. I had recently written an article "Should you buy stocks of IT companies for long term?" referring to Another Proposed Law To Stop Offshore Outsourcing which is called as "Stop Outsourcing and Create American Jobs Act of 2010". Here is another news that could be troublesome for Indian Call centers and maybe for IT companies too.
The recession in America had reached at it's peak last year. It lost roughly 8 Million jobs to recession. Yes, that's 8,000,000 jobs! And since loosing these jobs, American companies have been able to create only 500,000 jobs back in economy. Rest of the jobs are still not in economy and American unemployment rate is at staggering 9% and increasing month by month.
This depressed economy has reduced operating costs so much that Indian outsourcing industry has not remained as attractive as it was 10 years back. People in America are demanding all these jobs back in their country and they are ready to accept the jobs at lower wages. The most basic motto behind outsourcing jobs to Indian companies was to save on costs. Now that cost is coming down for Amercian companies in the form of lower wages. Plus they have lot of advantages such as no cultural difference, no language trainings, no accent trainings, no hassles and frustrations for American customers to understand non-American English. The list is quite long. Many of the rural American areas are almost matching the cost of Indian labor and operation costs.
Checkout the latest news from US about this here: Call-center jobs returning to US
Why am I writing this here? On Indian Stocks News? How is it gonna affect stocks? And which stocks?
Most of the giant IT companies today have call centers as their integral part of business. Wipro, Infosys, HCL ... they all have it. And that division is going to get affected in long term. if not affected, they would certainly not grow at the historic growth rates for sure. Same is applicable to an extent in software services domain. Although not immediately, in long run. The "Stop Outsourcing and Create American Jobs Act of 2010" is set to make entry this year and if it gets passed, it is going to hurt all the outsourcing from America.
All in all, I would like to repeat my opinion: I strongly feel that it is going to be extremely difficult in future for Indian IT companies to even keep up the growth rates they are accustomed to in last 10 years. This ultimately is going to take toll on their overall profitability and profit growth. The kind of explosive growth experienced by Indian IT companies in past few years could stall in future and so would slow down the growth of their stock price.
Finding a multibagger stock out of Indian IT companies stable is going to be extremely difficult in future. It is my gut feeling to not to keep my portfolio relied on IT stocks for growth. I would be glad to know your opinions, you may use comment form below to post your opinions.
Checkout: Should you buy stocks of IT companies for long term?
