Indian IT Firms Spark Merger Chatter

The next stage in the growth of the Indian IT services firms is starting to take shape, as bellwethers like Infosys(INFY Quote) and Wipro(symbol Quote) flex their muscles as strategic acquirers.

Rumors floated in India this weekend that Wipro was putting together a $7 billion buyout of European management consultancy Capgemini, one of Europe's largest consulting firms. The Hindustan Times first reported the possible transaction, citing an unnamed investment banking source.

The deal talk is highly speculative, however, and follows rumors that circulated months ago that Wirpo's hometown rival, Infosys, was eying Capgemini.

For its part, Capgemini says it is not in talks with Wipro, according to a report by Dow Jones.

Wipro couldn't be reached for comment.

Such merger speculation has taken hold in the past as analysts speculate that acquisitions would help Indian firms gain instant credibility for offering high-end business advisory services -- and take them beyond their niche of software development and outsourcing.

The industry has already seen Indian firms step up their game by developing subject matter expertise to embed themselves in their clients' day-to-day operations. Hyderabad, India-based Satyam(SAY Quote), for instance, is offering engineering design for aerospace and manufacturing clients.

And in July, Mumbai-based Patni(PTI Quote) acquired a firm to help pharmaceuticals makers manage data from clinical trials and navigate the drug regulatory process.

India-based outsourcing firms are also keen on setting up shops closer to their clients, and acquisitions would certainly help with this process, says Ashish Thadhani of Gilford Securities.