Political Shakeup Rattles Indian Outsourcing Firms

The political earthquake that swept India's nationalist government out of power last week is unlikely to damage the country's thriving outsourcing businesses, short-term damage to related shares notwithstanding.

Analysts, academics and business people who follow developments on the subcontinent said the 15 years of economic reform that transformed a backward, colonial-style economy into a global power were the product of a national consensus. In fact, the victorious Congress party began the reforms in the early 1990s, and there is a strong possibility that Manmohan Singh, minister of finance at that time, will be reappointed to his former post.

"Dr. Singh was an icon, and what he did for Indian reforms was staggering," Vivek Paul, vice chairman of Wipro(WIT), India's third-largest software services exporter, told Reuters news service. "It is difficult to get worried about that."

Martin Kenney, a professor of human and community development at the University of California at Davis, said of India's booming computer services industry: "It is inconceivable to me that Congress would do anything to disrupt this at all. The elites in India are on board."

That said, instability of any kind generally shakes investor confidence, at least in the short term, and the surprise change in India's government is no exception.

After sliding 6% Friday, the Bombay Stock Exchange suffered its worst-ever session Monday: The benchmark Sensex fell as much as 15.5% intraday before closing down 11.1% in a session in which trading was twice suspended by regulators in an effort to quell the decline.

After falling nearly 10% Friday, shares of Wipro were recently down $2.55, or 6.6%, to $36.25. Meanwhile, Infosys(INFY) was recently off $3.48, or 4.7%, to $71.17 after declining 6.6% Friday, and Satyam Computer Services(SAY) was down $1.64, or 8.9%, to $16.73 after losing 7.5% Friday.