Change takes IT by storm

Written by Shreya Roy | Shreya Roy | Updated: Dec 31 2011, 19:22pm hrs
ITSD Shibulal, Narayana Murthy, KV Kamath and Kris Gopalakrishnan announcing Infosys? leadership changes.
Between January and December, 2011, the Sensex plunged almost 23%, its second-biggest fall in 20 years. During this period, the IT index was relatively unscathed, notching up a small gain of 2%, an indicator of how the $76-billion IT/ITeS sector has managed to keep going in turbulent waters.

Billion-dollar deals, big-bang management overhauls, high-profile departures and succession plans have ensured an eventful year for Indian IT. A favorable rupee in the latter half gave companies reason for cheer. Despite anxiety about volumes in the coming quarters, companies continue to meet hiring targets, creating jobs for both domestic and international centres. Apex body Nasscom expects a 15-20% revenue growth for the fiscal which wouldnt be a mean feat, considering talks of IT budget cuts globally, feel experts.

IT has definitely managed to do better than sectors like capital goods, infrastructure and construction, as seen in its performance vis-a-vis the Sensex, said Sanjeev Hota, senior analyst with brokerage firm Sharekhan.

The year started off on a high note for the industry with strong hiring figures, acquisitions and management restructuring. Despite the turmoil in the West, the last four quarters have seen good growth. The macro economic situation is yet to impact the sector, he added.

The year was heavy with consolidation, starting with the $1.2-billion acquisition of Patni Computer Systems by iGgate in January. The $550-million acquisition of Headstrong by Genpact and the $630-million buyout of Intellinet by Serco also made headlines in the first half, followed by deals like CSC-Applabs later. Most recently, Infosys acquired the Australian sourcing services firm Portland Group for R200 crore.

M&A was noticeably front-loaded, with large combines including iGate-Patni, Genpact-Headstrong, Serco-Intellenet. Venture capital investment activity remained strong, with the internet space witnessing some big moves at significant valuations, said Deloitte India senior director PN Sudarshan.

But the drama this year came from unexpected exits, added to the retirement of one of ITs most iconic figures. In April, NR Narayana Murthy, founder and chairman of Infosys, announced his retirement and became chairman emeritus for life when he stepped down in August. KV Kamath, non-executive chairman of ICICI Bank, succeeded him, while the companys former CEO Kris Gopalakrishnan was named executive co-chairman. SD Shibulal took over as CEO, and TV Mohandas Pai, an Infosys old-timer and board director, controversially announced that he would be leaving to pursue opportunities in the education sector.

Wipro also went through a major management rejig in April, the effects of which lasted for the next couple of quarters. Suresh Vaswani and Girish Paranjpe, joint CEOs who steered the company through the 2008-09 recession stepped down and were replaced by TK Kurien, former head of Wipros green technology business.

Top bosses in mid-cap companies were not to be left behind either. MindTree chairman Ashok Soota resigned to set up his third venture, Happiest Minds. Within three months, the company raised $45 million in series-A funding, led by Canaan Partners, Intel Capital and founders.

2011 was a year of transformation for the Indian IT industry. Companies have restructured leadership teams, redefined strategies, enhanced alliances and channels and focused on a new value proposition portfolio, said Nishchal Khorana, head (consulting, ICT practice), Frost & Sullivan, South Asia & Middle East.

While TCS did not participate in the restructuring saga, it managed to retain its top slot among Indian firms, emerging as the undisputed leader yet again. In July-September, the $8.2-billion technology giant beat its closest rival Infosys in volume growth, gaining 6.25% sequentially, compared with the latters 4.5%. In November, the firms BPO subsidiary bagged a $2.2-billion order in the insurance segment, the second-largest order among Indias BPOs. For the third quarter, analysts are betting on TCS to once again outperform peers.

TCS upbeat commentary on demand, broad-based growth outlook barring the telecom vertical, hiring track record and timely closure of IT budget, from clients make it the best bet in the Indian IT sector, said an analyst from IDBI Capital.

Interestingly though, in December, Infosys emerged as the most influential company in terms of Sensex weightage, dethroning corporate titan Reliance Industries. Brokerage firms have stated that Infosys is also likely to have a better-than-peers show for the third quarter. But the company has been the first to sound warning bells, stating that it would not be meeting the top end of its 3-5% growth guidance for the quarter. Its top officials have candidly said that the road ahead is going to be rough, and 2012 might just be a throwback to the last recession.

The momentum of new business has come down drastically through the year. Next year is going to be very challenging. It could be similar to 2008-09. Growth could be slower, said V Balakrishnan, chief financial officer, Infosys.

Although other firms have not been vocal about the future, analysts feel FY13 will be a test for Indian IT. From our recent conversation with the IT companies, everyone indicated a flat-to-marginally down IT budget next year, except for TCS, which sees IT budget to be marginally up. Everything will depend on the current macro scenario. If the environment does not improve, clients will not spend even if they have the budget, and things could become tough, said Hota of Sharekhan.