Discretionary spend to drive growth

Written by Surabhi Agarwal | Updated: Jan 28 2010, 04:28am hrs
The countrys fourth largest IT firm, HCL Technologies, on Monday announced a 23% year-on-year growth in revenues. However, the net profit declined by 20.5%, worse than market expectations. Vineet Nayar, CEO, HCL Technologies, told FE's Surabhi Agarwal that the companys investments in people, new verticals and emerging technologies have paid off. Excerpts:

Is it time now for the IT industry to drop the word cautious from cautious optimism that the industry has been talking about for sometime now

I think that if we could deliver 23% year-on-year growth this quarter and 28% for the year even while using the words cautious optimism, I like them.

What lies ahead in terms of deal size and volume

Before recession, IT services outsourcing was about hope-led spending. Then discretionary budgets collapsed and we were into saving costs. Going forward, the big change that will happen is that the consumer behaviour is going to change. So, you will also see discretionary spending coming up because the economy is reviving and the consumer is changing. So, the next phase of growth will be led by discretionary spending.

When do you expect discretionary spending to resume

The July-September period is the first quarter when discretionary spending will resume. However, budgets will be flat this year. I dont expect any funds uptick at least this year. People are very conscious of the fact that they can take money out of run the business and put in change the business. So we are trying to cut costs for our customers by finding ways to outsource and offshore more. The second factor is that they are concerned that if they do not spend money to change the business, they may miss out on growth. So, investments in IT should flow soon.

For most of your peers, banking financial services and insurance (BFSI) vertical has driven recovery. How has it been for you

I think BFSI for us has grown twice as fast compared to what it has for our peers in the industry. So BFSI has surely been a driver. But there are other verticals like media and entertainment, life sciences and retail, which are also growing. These verticals, though currently small, are growing in terms of the overall contribution to the revenues. However, I am watching the manufacturing space very carefully. The moment uptick starts happening, discretionary spending will begin.

A lot of growth for HCL came from vendor consolidation. Will these exercises continue even after recession

Yes, the industry is like a pyramid. Most of the large vendors have already consolidated their suppliers. Some have already done it and the smaller ones are doing it now, as they were the last ones to wake up to the trend.

What are the emerging trends in this space

Increasingly, we are seeing a merger of IT and BPO services. An integrated transaction processing has combination of IT, BPO and infrastructure, which is where the world is going. Over a five-year period, we could see IT and BPO being offered as an integrated package. But, right now, it is happening with very few deals. All these new technologies and models like cloud computing and software as a service, will take time to mature. But by 2015, we can be rest assured that it will be an all pervasive way of doing business.