'Shareholder returns hurting IT decision-making'

BENGALURU: High shareholder returns are impeding some IT service companies’ ability to respond to business changes, even as the sector is poised to grow strongly in the next two years, rating agency Moody’s said.

The rating agency pointed out that five of the six Moody's-rated Indian IT services companies returned on average around 130 per cent of cash flow from operations less capital spending to shareholders in the last 12 months.

“High levels of cash outflows to shareholders are reducing the ability of Indian IT services companies to respond to business demands, including the acquisition of new technology, as well as research and development to meet fast-evolving customer needs," Saranga Ranasinghe, a Moody's Assistant Vice President and Analyst, said in a note.

The agency said that because the industry is facing challenges, including rising competition, pricing pressure and employment costs, it was important for the companies to maintain solid liquidity buffers to respond to business changes.