Channel Insider content and product recommendations are editorially independent. We may make money when you click on links to our partners. Learn More.

Sept 19 (Reuters) – Wachovia Capital Markets downgraded IT offshore outsourcing sector to "market weight" from "overweight," citing the recent chaos among major financial service providers.

Financial service providers — a key source of business for the IT offshore outsourcing sector — is expected to cut back further on IT spending in 2008 and 2009, given the increased level of turmoil in the equity and credit markets, Wachovia analyst Edward Caso said.

Foreign exchange has also turned sharply unfavorable, impacting reported revenue for those with work in Europe and reporting in U.S. dollars, the analyst said.

Caso downgraded Infosys Technologies (INFY) Cognizant Technology Solutions (CTSH) and Accenture Ltd (ACN) to "market perform" from "outperform."

However, offsetting these negatives is the favorable impact of a weakening Indian rupee, relative to the U.S. dollar, on operating margin for the offshore providers, Caso said.

The largest beneficiaries of the weak Indian rupee are Infosys, Wipro Ltd (WIT) and WNS Holdings Ltd (WNS), while the smallest beneficiary is Cognizant, the analyst added.

Caso upgraded IT government services providers to "overweight" from "market weight" to reflect the sector’s greater visibility. (Reporting by Aftab Ahmed in Bangalore; Editing by Himani Sarkar)

© Thomson Reuters 2008 All rights reserved