IT margins SHOULD decline...

For the quarter ended December 2008, the Indian IT sector has been one of the better sectors in terms of reported operating margins, among the top companies Infosys has beaten the street expectations and the likes of Wipro and TCS have done reasonably well. (Thank fully SATYAM is no longer a big IT company).

The guys on TV say that this is primarily because of a weakening rupee, and a good performance at operational level. Then the management comes and provides a fairy tale type decent guidance for the coming quarter/fiscal and the IT stocks start rallying.

Then someone comes the other day and says that Mr. OBAMA is against outsourcing; hence troubles for Indian IT companies and I just read in papers today that people in rural areas in US are developing it as an IT sourcing hub in order to generate employment. (So one more competitor for Indian IT companies).

However I cant understand one simple business logic, that if my clients are making huge losses , how can I continue showing great margins despite being a public company where my customers can see my margins. Margins in Indian IT industry are as high as 30% at the operating level and when the customers can see the accounts of the public companies then why are they not asking for price cuts so as to reduce there own personal losses

I strongly believe that this era of higher margins by Indian IT companies should come to an end if their customers (likes of Citigroup, Merrill, etc) have simple business sense and start asking for lower prices for the services provided to them by the Indian IT majors.