If you were to use one word to describe the Indian IT industry, that word would most probably be uncertain. So it came as a relief to many when India’s second-largest IT major, Infosys, did better than market estimates by posting a Q1 net profit of Rs23.7 billion (about Dh1.42 billion) — a year-on-year growth of 3.7 per cent. As SD Shibulal, CEO and Managing Director of Infosys noted, this performance was despite facing “an uncertain macro environment, changing regulatory regime and a volatile currency environment”. In fact, the industry body Nasscom, in its Strategic Review 2013 report, highlights that “there has been a higher degree of uncertainty than at almost any time in recent memory, and this has left an indelible impact on the IT-BPM industry.”
But an even more impressive performance was to follow days later — India’s largest software company, Tata Consultancy Services (TCS), posted a first quarter 15.5 per cent jump in net profit, to Rs38.3 billion. TCS is also confident of outperforming the 12-14 per cent growth estimates for 2013-14, put out by Nasscom.
Sunny quarter all around
The immediate future is indeed looking better for most IT services companies in India. Ganesh Natarajan, former Chairman, Nasscom and current Vice-Chairman and CEO, Zensar Technologies, says, “The overall performance of the tech sector has been excellent this quarter and all significant companies have reported sequential quarter growth in revenues and profits and have adequate order books and pipelines. All this points to a definite double-digit growth in constant currency terms for the industry in this fiscal year.”
BVR Mohan Reddy, Chairman and Managing Director of Infotech Enterprises Limited, believes only a few rough patches remain. He says, “Challenges with the US economy seem to be behind us. Europe continues to have uncertainties but the UK and Germany are showing stability and traction. Japan in APAC has recovered and is providing growth opportunities.” He points out this is being reflected in the results posted by large and midcap IT companies with “revenue growth, stable margins and sustained profitability” for the last quarter. “The industry is confident of bettering its performance this fiscal year compared to last year,” adds Reddy.
Like Shibulal of Infosys, Natarajan too is “cautiously optimistic” about the rest of the year, given that the spending and pricing environment is stable. “However, the economic sluggishness continues and hence we all have to watch for economic and policy trends in our key markets,” he says, reiterating that the challenges remain the protectionism in some markets and the slow economic recovery in the West. In addition, Reddy feels that “the Indian industry’s focus on local (in country) recruitment will not affect industry prospects.”
Immigration worries
Natarajan does not believe the US’ new insourcing policy is as much of a challenge as the impending Immigration Bill. “It could result in a rise in visa costs, a change in the employee profile in the US and even a potential change in the business model if outplacement of manpower and displacement of American jobs is banned,” he adds. The US remains the largest market for India’s $108 billion (about Dh396.6 billion) IT sector — 62 per cent of Infosys earnings, for example, come from North America. Any tightening of visa requirements will hit the bottom lines of companies that send troves of techies “on-site” to US companies from India.
Upwardly mobile
India’s other challenge will be to rise above the image of being suppliers of coding coolies — a vast army of low-cost workers doing low-value work. Globally, Gartner pegs IT spending for 2013 at $3.7 trillion, which will tip over $4 trillion by 2015. Indian IT exports are estimated at $87 billion in 2013-14, as per Nasscom — of which, IT services account for a massive 58 per cent.
And to move up the value chain, India will need to invest in ‘evolving’ the talent pool. Reddy is optimistic that several joint initiatives by the government and industry are helping improve the availability of a skilled workforce.
The Global Information Technology Report 2013, released by INSEAD and the World Economic Forum, cautions that a “critical determinant of a country’s readiness” — literacy — is an area where India has “among the lowest in the sample at 63 per cent”, putting the country way down at 121 in its rankings. The silver lining, however, is that the government is placing a lot of emphasis on Information and Communications Technologies as a way of addressing some of the country’s most pressing issues”.
As Nasscom’s Strategic Review 2013 concludes, “India continues to be the global sourcing leader, but the total global sourcing market of $124-130 billion accounts for only a little over 10 per cent of global IT-BPM spend — highlighting the still large, untapped market opportunity.”
And Indian IT firms are well set to take advantage of this opportunity by, among other things, “expanding their focus to new services, technologies, verticals and geographies”.
