Indian outsourcing companies are looking to step up deal momentum amid rising consolidation in the industry as they face the threat of their services getting commoditized. Companies such as Tata Consultancy (TCS.BO: Quote, Profile, Research, Stock Buzz), Infosys Technologies (INFY.BO: Quote, Profile, Research, Stock Buzz) and Wipro (WIPR.BO: Quote, Profile, Research, Stock Buzz) have historically been conservative when it came to mergers and acquisitions and have shied away from large deals.

But in the face of commoditization of their services, which include product engineering, business process outsourcing and software testing, the firms are being forced to take a fresh look at their strategies.

Top executives of Infosys and Wipro said at the Reuters India Investment Summit that they were looking to expand through acquisitions.

Companies are now eyeing deals as a way to enhance scale, acquire domain expertise and increase their competitiveness.

"The Indian firms are getting increasingly ambitious as they see their core offshore application development and maintenance business become more commoditized," Kaufman Bros analyst Karl Keirstead said.

IT services firms are being lapped up. In September, Xerox Corp (XRX.N: Quote, Profile, Research, Stock Buzz) said it would buy Affiliated Computer Services Inc (ACS.N: Quote, Profile, Research, Stock Buzz) in a deal valued at about $5.5 billion, and Dell Inc (DELL.O: Quote, Profile, Research, Stock Buzz) said it planned to buy Perot Systems Corp for about $3.9 billion.

Wipro may not do very small acquisitions, said Suresh Vaswani, joint CEO of Wipro's IT business, at the Reuters India Investment Summit.

"If we do an acquisition, it will be impactful and strategic," Vaswani said.

But rival Infosys Technologies Ltd (INFY.BO: Quote, Profile, Research, Stock Buzz), India's No. 2 software exporter, is focused on small acquisitions to boost growth, Chief Financial Officer V. Balakrishnan said.

Infosys, which is sitting on a cash pile of nearly $3 billion, may look at buying companies in consulting, back office, healthcare and utilities segments, Balakrishnan said.

"We look at small, niche acquisitions which will help us to penetrate certain geographies much faster, grow certain verticals much faster, grow certain services much faster," Balakrishnan said.

Earlier this month, the back-office services unit of Infosys Technologies Ltd (INFY.BO: Quote, Profile, Research, Stock Buzz), India's No. 2 software exporter, said it would acquire U.S.-based McCamish Systems for an upfront payment of $38 million to boost its service oferings.

Analysts see the move as a sign that points to the M&A appetite that Indian firms are starting to show.

Last month U.S.-based Cognizant Technology (CTSH.O: Quote, Profile, Research, Stock Buzz), the majority of whose employees are located in India, agreed to acquire UBS India Service Center Private Ltd for about $75 million to strengthen its position in financial services, one of its key markets.

"The Indian IT services firms are prone to pursue acquisitions to help them move up the food chain into consulting and systems integration services," Sanford C. Bernstein analyst Rod Bourgeois said.

"They're also in need of acquisitions to gain local presence in the major countries of Europe," he said.

Infosys, which is targeting companies with revenue of about $400 million to $500 million, may acquire firms in Germany and France to expand its presence in Europe, Balakrishnan said.

DON'T FOLLOW THE CROWD

In IT services, there have been two schools of thought: the IBM (IBM.N: Quote, Profile, Research, Stock Buzz) model, where the company made significant acquisitions to diversify, and the Accenture (ACN.N: Quote, Profile, Research, Stock Buzz) model, where organic growth trumped acquisitions.

Some companies have been looking up to precedents from IBM, which bought PwC Consulting from PricewaterhouseCoopers for about $3.5 billion in 2002, and Hewlett Packard (HPQ.N: Quote, Profile, Research, Stock Buzz), which acquired EDS for $13 billion in 2008 in what is considered the largest-ever acquisition in the IT services space.

Accenture is widely viewed as the leading player in the space and it has never made a significant acquisition, Kaufman's Keirstead said. "There's plenty of data points you can point to suggest that a model based on organic growth is in fact the winning strategy."

Companies following the IBM model are not necessarily successful, Global Equities Research analyst Trip Chowdhry said.

"The Indian strategy is good," Chowdhry said. "They don't have to follow the crowd. They just have to make selective acquisitions if and when they make sense."

The Indian firms were being prudent, he said. "Acquisitions in IT services are human acquisitions. You're buying people, you're buying contracts."