India's showpiece $76 billion industry gets more than 90 percent of its revenue from providing technology services to overseas clients and counts the United States and Europe as its biggest markets.
Europe is the second largest market for the software firms, and the euro zone debt crisis is a worry for the sector that has been looking to increase its sales to the region to hedge against their excessive exposure to the United States.
"If the global economic situation worsens, the sector could see a temporary blip with customers opting to suspend technology spending," said Eric Mookherjee, the Paris-based chairman of Shanti India fund.
"I see no reason for the healthy demand momentum not to continue in the medium to long term as companies will continue to looks at ways to cut costs," said Mookherjee, whose fund owns TCS and No.2 software exporter Infosys shares.
TCS Chief Executive Officer N. Chandrasekaran said there were "ambiguities in the external environment in the short term" but the company had not yet seen any project cancellations or cutback in client spending on technology.
"Even though the macro uncertainty continues and there is a lot of negativism, we are getting positive vibes from customers in terms of their IT spend going forward," Chandrasekaran said, adding the firm was eyeing at least 10 large deals currently.
TCS added 12,580 staff in the July-September quarter, its strongest pace of addition in two years, and retained its forecast of adding 60,000 employees in this fiscal year, underscoring hopes of strong outsourcing demand.
TCS and its local rivals, who provide a host of IT services to Fortune 500 firms, face stiff competition from global players including IBM and Accenture for large outsourcing deals from global corporations.
Chandrasekaran said the company saw a marginal decrease in second-quarter prices, and billing rates were unlikely to go up in the near term due to the negative macro environment.
"Volumes are quite good. Pricing (increase) may be delayed because macro uncertainty has gotten worse," he said.
Infosys, seen as a trend-setter for the sector, last week reported a 9.7-percent rise in second-quarter profit, roughly in line with estimates, easing worries of a slowdown in the outsourcing sector due to economic concerns.
Third-ranked Wipro is expected to report a 0.7 percent drop in its quarterly net profit on Oct. 31.
PROFIT RISES
TCS, a unit of the salt-to-steel conglomerate Tata Group, said its fiscal second-quarter net profit rose to 24.39 billion rupees ($498 million) in accordance with international financial reporting standards, from 21.26 billion a year ago.
Revenue rose by a quarter to 116.34 billion rupees, as it added 35 new clients in the period to take the tally to 1,010.
This compares with a Reuters poll forecast of 24.77 billion rupees in profit and revenue of 117.05 billion rupees for the company, whose major clients include Citigroup, General Electric, British Airways and Sony.
The company reported a 195 basis point drop in its profit margins from a year ago to 21 percent in the quarter, as the cost of hiring a large number of employees and wage hikes took their toll.
But a weaker rupee, which has fallen more than 10 percent since end July after touching the 2011 high, had a positive impact of 1.7 percent on margins in the quarter for the exporter that gets more than half its revenue from the United States.
Shares in TCS, valued at about $45 billion, closed down 1.2 percent at 1,120.25 rupees ahead of the result announcement in a Mumbai market that closed 0.27 percent down.
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