Indian outsourcers will be hit by the the fall out of the credit crisis, analysts and trade bodies are warning, with software development likely to bear the brunt of the decline.

Sudin Apte, an analyst at Forrester Research believes that IT budgets in the banking, insurance and financial services sector will be cut by at least 15 per cent to 20 per cent.

India’s National Association of Software and Service Companies ( Nasscom ) is also warning that the crisis will have a short term impact on Indian outsourcers, as new projects may get delayed.

The trade body will not, however, decide until December whether to revise its target of $60bn (£32.7 bn) in IT and business process outsourcing (BPO) exports by 2010.

Some Indian outsourcers, have lost customers as financial services companies such as Lehman Brothers have been swept away, said Siddharth Pai, a partner at outsourcing consultancy firm Technology Partners International . For surviving companies. IT projects are being slowed or stopped, he added.

Software outsourcing to India is likely to be more hit than BPO because spending on IT tends to be more discretionary than spending on business processes, said Nikhil Rajpal, principal of Everest Group , a research and advisory firm.

Revenue from banking, insurance and other financial services customers already account for a large proportion of the revenue of Indian outsourcers.

India's largest outsourcer, Tata Consultancy Services, for example, earned 43 per cent of its revenue in the second quarter from the banking, insurance and financial services sector, while Infosys Technologies, the country's second largest outsourcer, got 34.5 per cent of its revenue from this sector.

About 15 per cent to 18 per cent of the business coming to Indian outsourcers from banking, insurance, and the financial services sector is now uncertain, Apte said.

Infosys has said that its revenue and staffing targets have not changed as a result of the financial crisis. The company did not comment for this story as it is in a "silent" period ahead of its quarterly results announcement next month.

Indian outsourcers generally believe that companies send more work offshore in times of crisis, to take advantage of lower costs in India and other locations. "We do expect that a tightening of budgets in the US will lead to more work being sent offshore to India," said a Nasscom spokeswoman.

The problem this time is that a lot of the customers of Indian companies like Lehman Brothers and Merrill Lynch will not exist anymore, Apte said.

The impact of the crisis on Indian outsourcers will last for at least another three to four years as the financial services sector goes through a major restructuring, Apte added.

Related articles:

Indian IT market will be $110B by 2012, Gartner says