Column: IT has made a strong comeback

When NR Narayana Murthy, chief mentor of Infosys Technologies (India?s second largest IT exporter) decided to name his new venture fund as Catamaran, Bangalore?s tech community instantly surmised that there could not have been a better name for the IT pioneer?s new business idea. In a year in which IT companies faced the wrong end of the stick, ravaged by the global meltdown, tech firms would be the first to admit that all they needed was a catamaran to sail across choppy waters.

Murthy?s new venture, however, could not overshadow the more cataclysmic events of the year. The Satyam scam was arguably the darkest episode in

Indian corporate history, the deepening of the global economic crisis slowed the $60 billion

Indian software industry considerably. Obama was categorical about his preference for Buffalo over Bangalore and to make matters worse, other countries like China, Philippines and Brazil continued to write their codes well, challenging India?s superiority on the tech terrain.

Indian IT services industry had grown by 30% annually for nearly a decade, by offering more economical outsourced services to clients abroad by writing software code and handling mortgage process operations. But the story suddenly started to look less fascinating after the industry grew by only 10% last year.

All through the year the media had only one question to ask the IT fraternity: ?When will recovery start to kick in??

None could predict it for a long time, with any degree of certainty. For the first two quarters of the fiscal, IT chieftains said they were not sure of the extent of time it would take for the business to turn around. There was severe pressure on pricing, tenure of the contracts shrunk, customers took a long time to finalise their budgets and client walk-ins had become a rarity.

It was only in the third quarter that companies like Infosys, Wipro and TCS started talking about ?early signs of recovery?. Concerns were giving way to confidence. Blue chip Indian IT firms like Infosys, Wipro, TCS and MindTree started getting better visibility into annual budgets of top clients and greater number of deals (sweet ones at that) started to flow in, despite the anti-outsourcing mood in the US. Many big IT spenders like Telstra, ABN-Amro, British Telecom, AT&T, Dell, McGraw Hill and Northern Trust Bank had deferred the budget allocations, but during the third quarter those worries had begun to wear out.

Out came a plastic grin on the face of many of the IT executives. Infosys CFO V Balakrishnan was the first to proclaim that there is a marked improvement in the business environment. He pointed out that there has been a change in fortunes with the US economy starting to show some positive signs.

Much to everyone?s surprise, it was the banking, financial services and insurance (BFSI) segment that bounced back the fastest. BFSI was the hardest hit during the downturn and no one really expected it to spring back to life within a year. About 40% of the revenues of top Indian IT firms come from this segment.

Outsourcing analyst S Sabyasachi came up with the statement that the spate of good earnings numbers from US companies (specially in the financial sector) has helped improved market sentiments. And it was not just the top-tier firms that started walking gingerly to the bank. The mid-sized IT firms also started to put up smileys outside cabin doors as the order pipeline filled up. Companies like MindTree, Patni, Sonata Software and Subex, among others, announced results of positive significance. As MindTree?s CFO, Rostow Ravanan, explained, smaller firms have been able to cut costs more easily and take innovative approaches. It?s easy to re-orient people to newer activities in smaller firms.

Emerging markets have also become a pool of big opportunities in the meanwhile. Latin America, Europe, Japan, West Asia and Australia have become bigger IT destinations during times of recession. For most IT firms, revenues from these emerging markets have doubled in the past one year.

In a chat with FE on Wednesday while reflecting on the year, Wipro?s joint CEO Suresh Vaswani admitted that 2009 was an unusual and eventful year. ?Fluctuating currencies and volatile oil prices were two big challenges,? he said. ?But overall, the IT industry has proven to be resilient.? According to him, it is during such times of crisis that clients look for innovative solutions. In uncertain times, clients are open to game changing solutions as they continue to look at transformation of their businesses, both in terms of demand generation and cost transformation. The economic crisis has taught the industry means to improvise on productivity and utilisation, and also alter hiring patterns to suit business demands, he said.

Maybe, just maybe, the industry has found his catamaran.

dj.hector@expressindia.com