Tarred with the same brush

(By Anthony Miller). It’s a sign of the times when players feel the desperate need to issue letters to shareholders explaining – usually for the ‘nth’ time – how their exposure to the financial services sector is not such a big liability after all, with the implicit plea to please stop selling their shares. The latest of these missives to cross my desk was issued earlier today (Friday) by Genpact (NYSE: G), the India-based but US listed GE BPO captive, previously known as Gecis. This crie-de-coeur was especially timely, coming the same day that Wells Fargo announced it is to take over Wachovia, the latter contributing over $25m of Genpact’s expected $1bn ’08 revenues.

Genpact still gets over half its business from its erstwhile parent of which about half are from GE’s financial services businesses. With the rest of its non-GE customers, Genpact derives 43% of total revenues from the financial services sector, much in line with Cognizant, though about twice that for Satyam. Of course, Cognizant et al are not ‘pure play’ BPOs like Genpact (though Genpact gets about a quarter of its business from traditional offshore IT services). Nonetheless, the market doesn’t really seem to care. If you’re “Indian” and you’re anything to do with IT/BPO services, then your stock gets tarred with the same brush. Just look at the chart. Sorry it looks a bit like a bowl of rainbow spaghetti but believe me when I tell you it shows the US-listed share price movements of the major Indian IT and BPO players YTD. The majority, including Genpact, are clustered around the -30% to -40% mark with two outliers: Patni, down over 50% YTD and EXL Service, down over 60%. It appears that the market sees the majors as ‘better quality’ than Patni and EXL, though this is not just a ‘size’ thing. WNS, smaller than Patni (and the recent winner of the $1bn Aviva BPO deal), is also in the ‘30-40% down’ pack.

I’m sure we’ll here a lot more pleas of mitigation as we enter the quarterly reporting season. First in the dock among the Indian majors will be Infosys next Friday.