The global economic downturn is having its impact on the most globally integrated Indian industry -- information technology. The July-September results for the top three firms -- TCS [Get Quote], Infosys [Get Quote] and Wipro [Get Quote] -- show that they have just been through a third successive quarter of declining margins, even as top lines have partially benefited from the declining rupee (though even that has not been an unmixed blessing).

That this is just the beginning of hard times is indicated by the downward revision in the dollar guidance by Infosys and Satyam [Get Quote] and a flat projection by Wipro (TCS does not issue any guidance).

The root cause is of course the crisis in the financial sector, which provides the largest customer base for Indian IT firms.

On top of that has come the volatility of the rupee which, after gaining against the US dollar through 2007-08, has fallen quite sharply thereafter -- and the US is of the course the largest market for Indian IT firms. Last year's rupee appreciation caught on the wrong foot all firms that had not taken foreign exchange cover.

Now, the depreciation in the current year has caught those who had. All three leading firms have booked losses by having to mark to market their forward contracts, which visualised a stronger rupee than what exists now, thus sacrificing some of the gains that would otherwise have accrued on account of the currency depreciation.

Wipro's chairman, Azim Premji, has summed up the outlook for the entire industry by observing that the significant deterioration in the global scenario has prompted the usually optimistic industry to become very cautious about the future.

He has simultaneously underlined its strength by asserting that the resilience of its business model will enable it to tide over these challenging times.

The silver lining to this very cloudy scenario is that the sharply rising wage costs and high attrition rates which had plagued this service industry are unlikely to raise their heads soon.

The last quarter has seen across-the-board improvement in staff utilisation, indicating that few are quitting; the industry is also trying to deliver more for less in order to keep the revenue pipeline active.

In this sombre scenario, the only leading firm which has not lowered its guidance is Cognizant. Among the big three, the pressure on TCS and the software business of Wipro seems to be particularly tough, whereas Infosys seems to be weathering the tough times relatively better.

It has till now stuck to its recruitment plan and crossed the 1000,000-employee mark. The conservatism that marks Infosys and which enables it to remain steady in troubled times was on display when it declined to get into a bidding war over the acquisition of Axon.

The industry leaders are fortunately well-equipped to tide over the present market downturn by having put into place the strategies which will work.

They are already well-versed in continuously improving productivity and cutting costs and have in recent years actively sought to go up the value chain.

In a way, one is the obverse of the other and reliance on these two weapons is likely to allow the industry to suffer the least at a time when virtually every other industry is battening down the hatches to fight the global recession that is round the corner.

The stock markets reflect the changed scenario -- from price-earning multiples of 25 and more, the market has dropped to a P:E of no more than 10 (15 in the case of Infosys), which would suggest that the IT sector will do no better than the rest of corporate India, and perhaps a good deal worse.

It is hard to believe that that is in fact the case, so it must be hoped that this is a case of market over-correction.