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2013:IT’s looking down the barrel

Dec 17 2012, 11:21 IST
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SummaryAny hopes of a better and brighter 2013 seems to be fast evaporating. Management commentary from leading and even mid-tier software firms have not been encouraging, pointing towards a very muted phase of growth in the IT sector next year.

Any hopes of a better and brighter 2013 seems to be fast evaporating. Management commentary from leading and even mid-tier software firms have not been encouraging, pointing towards a very muted phase of growth in the IT sector next year.

The cascading effect was set off by Cognizant, the US headquartered IT major with a substantial Indian presence. In a SEC filing the Nasdaq-listed firm said it will pay top executives a 100% performance linked stock options if its revenues touched the $8.51 billion mark in 2013. However, a back-of-the-envelope calculation revealed that this would result in a growth of only 16%, much below its expected growth of 20% this year.

This was indeed surprising because Cognizant was one company that was zooming off on a fast lane, leaving most Indian IT firms behind. The news of Cognizant taking a conservative stance surprised the industry and a few alarm bells rang.

This was soon followed by statements from the Infosys top management about the need to drive down estimated revenue projections. During discussions with analysts recently, Infosys said the company may miss its organic growth guidance of 5% for the current year because of delays in decision-making by certain key customers and ramp-downs in certain projects. Then it also mentioned something unique—the impact of Hurricane Sandy.

Barclays has projected a 3.8% revenue growth for Infosys this fiscal and that’s bad news for investors. The guidance however does not take into account, revenues generated out of Lodestone, the Swiss firm that Infosys acquired in September.

Infosys had initially guided for a 8-10% revenue rise for FY13. But after the first quarter results, it lowered it to 5%. The call was then taken to abolish the practice of giving out quarterly forecasts. But just when one thought that was the end of it, in came another surprise in the way of the investor call while forecast further doom. A note from UBS said Infosys management remarked that the guidance was under threat due to delayed customer decisions and that the crisis was especially deep in the manufacturing sector. Now, only Infosys can probably explain why the crisis is so acute at the Bangalore company. While the management has tried to throw more light on the issue in many ways, the fact that it had to drive the guidance downwards twice in the same year does not augur well.

The wave has percolated down to the mid-sized

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