1. IT industry Q 2 earnings: From Infosys to TCS, growing distress levels emerging

IT industry Q 2 earnings: From Infosys to TCS, growing distress levels emerging

IT industry, which rode the wave earlier on the low-cost delivery model, has to now confront the challenge of dealing with new technologies. Delayed decision making by clients on IT spending and lack of clarity on future business models have added to woes

By: | Bengaluru | Updated: October 15, 2016 7:15 AM
startup-L-Reu The Indian IT industry which rode the wave earlier on the low cost delivery model with fixed deliverables have to now confront the challenge of dealing with new technologies like digital, automation and robotics.

The second quarter numbers of India’s biggest IT firms – Infosys and TCS- could well accentuate the distress levels of the $150 billion Indian IT industry.

Delayed decision making by clients on IT spending and lack of clarity on future business models have added to the degree of difficulty faced by the sector.

Brokerage house Kotak Institutional Equities in its note had said that the September quarter of FY17 will be the weakest second quarter for the Indian IT industry in the past eight years. It had predicted that growth will be impacted by broad based weakness in BFSI, healthcare and delays in projects across many clients.

The Indian IT industry which rode the wave earlier on the low cost delivery model with fixed deliverables have to now confront the challenge of dealing with new technologies like digital, automation and robotics.

Sid Pai, lead consultant, Tekinroads, a technology consulting company told FE, “The industry is certainly at a crossroads as the spending on technology has moved to a new realm but Indian IT companies have been unprepared to meet this demand.”

According to Pradeep Mukherji, president of Avasant, a technology services advisory firm, slowness in decision making from the clients’ side was a good indicator about how the businesses are struggling to implement newer technologies. The pressures of these challenges have already started to weigh down on the Indian companies as they have to continuously improve the internal efficiencies to keep up the growth.

“The traditional business of Indian IT is getting increasingly commoditised with ever growing pricing pressure while new segments like digital will not get you the bulk revenues,” said an executive of a leading Indian IT company.

This has already resulted in TCS posting a very flat growth in revenues for the second quarter while Infosys lowered its annual revenue guidance for FY17 to single digits. Though, Nasscom has projected the Indian IT industry to record 10-12% growth for FY17, there is a likelihood that it may look at a revision at a later date.

Sanjoy Sen, Doctoral Research Scholar, Aston Business School, UK, said, “It has been a tough decision point for most IT companies including TCS this quarter – does one curb investment and marketplace momentum in fear of Brexit and pricing pressures or do you push ahead to fight the headwinds to grow top line and bottom line, knowing that these endeavours will not achieve their full impact?”

There has also been certain changes which are being ushered in by the Indian IT companies to adapt to the changed business environment. Large Indian IT companies such as TCS, Infosys, Wipro etc have made significant investments in the area of digital besides looking to access advanced technologies through investments in the new age start-ups.

“Indian IT companies are trying to figure out what would be the future delivery models as clients are seeking out innovative solutions from them,” Mukherji said.

The lack of clarity of a viable business model has clouded the growth path for the Indian IT industry and it is very unlikely there would a change anytime soon.

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