Indian outsourcers start to feel subprime fallout

By Sumeet Chatterjee

BANGALORE (Reuters) - Ripples from the U.S. subprime mortgage crisis have reached India's back-office outsourcing sector, where mostly smaller firms are feeling the pinch as U.S. companies cut back or stop some spending on services.

Already struggling with a stronger rupee and rising wages, the fear for outsourcers is that the subprime woes will spread, although larger players such as Infosys Technologies say this could open up new opportunities.

"The key issue here is the number of challenges being faced at the same time," said Atul Vashistha, chief executive of U.S.-based outsourcing consultancy firm neoIT.

"The question is how do they handle the exposure to a slowdown in the financial sector as the subprime woes spread to their other financial businesses."

Bangalore-based iGate Global Solutions Ltd, a mid-sized outsourcer, has seen its income from U.S mortgage companies drop to 7 percent of its revenue in the June quarter from more than 10 percent in the December quarter.

"This has come like a second wave. It started in February-March and after that it kind of died down. Now it has picked up, which is of course a little concerning," iGate chief Phaneesh Murthy told Reuters.

iGate's clients include GreenPoint Mortgage Inc, a unit of Capital One Financial Corp which said on Monday it would shut the wholesale mortgage unit due to the downturn.

Last week, India-based outsourcing company WNS (Holdings) Ltd lowered its fiscal 2008 outlook as work stopped coming from U.S. mortgage lender First Magnus Financial Corp, which closed funding home loans and taking mortgage loan applications.