INDIA'S technology firms are no longer spring chickens. Infosys had its 30th birthday this year and its lead founder retired, hailed as a visionary by his colleagues and celebrated as the man who kick-started the country's first world-class industry. Yet judged by their share prices of late, the three big firms, TCS, Infosys and Wipro, are still giddy, uncertain things. Last month TCS's shares, which had swaggered earlier in the year, slumped as it posted disappointing quarterly figures. Wipro's shares are well down on the year and this week's news of quarterly profits little changed from a year ago sent them a bit lower still.

The volatility partly reflects investors' fears of a depression in the rich world, where the three make the bulk of their money. But it is also a symptom of mild paranoia about whether these firms can in their dotage still deliver perky growth. The worry is that they might go the way of Nokia: for years the Finnish handset firm maintained high margins, in defiance of its many doubters. Then, suddenly, the naysayers were proved right.

Regarding the slump in rich economies, the recent past does offer a chilly precedent. During the Wall Street crisis in mid-2009 the IT firms' revenue growth slowed almost to zero as customers, especially financial ones, slashed spending. But activity bounced back smartly (see chart) as clients recovered their nerve and redoubled efforts to cut costs through outsourcing and reorganising their back offices. Today the hope is that customers will be less panicky. All of the big three insist there has been no sudden slowdown in spending and are continuing their colossal hiring programmes in India (together they now employ almost half a million people, almost all in their home country). Natarajan Chandrasekaran, TCS's chief executive, has visited more than 100 customers worldwide in the past three months and says they are resolute. “They are going about their business in a systematic way. They realise the situation in the US and Europe is going to take time to sort out.” But even if “Financial Armageddon: The Sequel” does not happen, what about the industry's long-term growth potential? “I don't think it is over by a long stretch,” says K.V. Kamath, the chairman of Infosys. “Indian IT is just starting to come of age.” Optimists point to a steady widening of the boundaries of outsourcing and argue it will continue. Pioneers such as General Electric turned to India's firms first, followed by the banks; the public sector in the West may be next. Hospital bosses in Ohio may not yet be thinking about running their diagnostic-test results from India, but clever people in Mumbai are. Likewise the habit of outsourcing should expand further from its core geography of rich English-speaking countries to places like southern Europe, Japan and emerging markets. India's IT-industry body, NASSCOM, reckons the total potential market will triple between 2008 and 2020. There have long been questions about whether the three firms are becoming unmanageably big. Yet so far they have doubled in size every few years without exhausting the supply of passable warm bodies from India's lousy education system. Even so, large numbers may catch up with them in other ways. Nimish Joshi, an IT analyst at CLSA, a broker, says their biggest clients are themselves approaching the limits to growth. Citigroup is thought to fork out $350m-400m to TCS a year: is it really going to increase that at 20% a year?

The Indian firms have survived the decline of clients before: BT Group, a British phone company that used to be a big customer, is now but a shadow of its former self. Still, it is likely that the biggest spenders—the top ten customers typically account for 20-25% of each IT firm's sales—will grow more slowly than the rest, bringing down overall growth.

There is a second consideration: that high unemployment and economic distress in the rich world may impose political limits to outsourcing there. In an interview in May, S. Gopalakrishnan, one of Infosys's top brass, noted that the boom in labour mobility over the past 30 years had coincided with strong growth. Now, at a time of stagnation in the West, worries about a backlash were “not going to go away”. Since his prescient comments, the Indian IT firms have found it harder to get visas to send staff out to America to liaise with clients on big projects there. One firm says the rejection rate for its visa applications has doubled, to 40%. Political pressure over unemployment is surely a factor.

More than just cheap

The law of large numbers; the sense that big clients may have matured; the political limits of outsourcing; not to mention wage pressures in India. All these explain a second pillar of Indian IT firms' strategy: to go beyond exploiting lower labour costs back home and become creators of intellectual property and purveyors of consultancy.

The industry has evolved before. It began in the 1990s simply maintaining software and systems designed and owned by others. Then came the Y2K bug, in which Indian firms helped save the world from the disaster-that-never-quite-was, boosting their profile. For the past five years the quest has been to evolve again, beyond just competing on price. The latest, slightly woolly, incarnation of this is to offer “solutions”; a package of services, sold on a continuing basis for fancy prices, ranging from the design and operation of software applications to advising customers on restructuring their businesses.

Using a narrow definition, such high-end activity probably accounts for less than a tenth of revenues today, says Noshir Kaka of McKinsey & Company, a consulting firm. Western firms such as IBM and Accenture can be sniffy about their Indian rivals' sophistication. Yet customers seem to be getting more promiscuous about whom they buy their “solutions” from: witness the rise of salesforce.com, a web-based, off-the-shelf product that helps companies manage their sales staff. This suggests that barriers to entry have fallen. The three Indian firms certainly hope so, and are throwing resources at muscling into higher-value services. If they get the formula right, their sales from this line of business “could go up fast”, says Mr Kaka.

To make the leap into the top league of global IT services, India's three giants may have to hire many more people in rich countries. That is partly because the required skills are scarce in India, and partly because a physical presence is needed for some tasks, especially in consulting. Japan's carmakers were pilloried in America until they shifted some production there, hiring locals and thus creating local loyalty. India's IT firms are now following their footsteps, as our next article explores.