Editorial: All’s well with IT

Nov 07 2013, 04:53 IST
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SummaryOn track to meet Nasscom projections

Indian IT firms reported good numbers for the three months to September although much of the expansion in ebit margins were the result of a weaker rupee. While management commentary and outlook have ranged from the cautious to the confident, there appears to be a general consensus the demand environment is reasonably good. Indeed, although the global recovery may be a fragile one, corporate expenditure on IT doesn’t seem to have trended down; on the contrary it would seem there is a slight acceleration in spends as corporates strive to cut costs. The TCS management indicated as much saying discretionary spends would continue to see an uptick. The spends by large US banks too are unlikely to come off even though many of them have not reported very strong numbers. That would imply IT budgets for CY14 aren’t likely to be pruned and may in fact become bigger. All this is good news for the offshoring market and is corroborated by the strong set of numbers reported by Cognizant for the September quarter—it has now overtaken TCS to become the largest company in terms of revenues from North America.

Indeed, Indian IT seems to be on track to achieve forecasts put out by Nasscom—the industry is expected to clock exports revenues of $84-87 billion in FY18, a growth rate of 12-14%. Companies appear to be more comfortable now with the US market—their biggest hunting ground. That’s probably what has prompted Infosys to raise its guidance, given it earns more than 60% of its revenues from that geography; it now expects top line to grow at between 9-10%.

However, the fact that there’s no talk of big increases in hiring suggests the optimism remains tempered. Also, pricing is under pressure --it’s possible IT players, right now, are willing to yield some ground on pricing in their effort to pick up large deals. What can queer the pitch is the resurrection of the outplacement clause in the US Immigration Bill; that could hurt since it would limit the number of Indian employees that can be working on H1B visas and compel IT firms to hire more locals which would push up costs. Also, while the BPO space is tipped to grow at 12-15% this year, India is becoming uncompetitive compared to countries like Phillipines and is consequently yielding market share.

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