Cognizant, the Nasdaq listed IT services major, has surprised the markets by lowering its annual revenue growth guidance for the second time this year by bringing it down to single digits. The company which recorded a sequential revenue growth of 5.2% for the second quarter of 2016 adding $170 million in incremental revenue felt that macroeconomic environment aggravated for the worse in the last three months which impacted the discretionary spending for technology services. Debashis Chatterjee, President, Technology Solutions, Cognizant, says it will remain focused on superior execution strategy and digital segment to combat the current environment in an interview with FE’s P P Thimmaya.

What were the reasons for the revenue growth guidance coming down to single digits?
If one looks at the overall macro economic environment it has been that of a low interest regime, there was some impact of Brexit, and the financial services sector has been very soft. Discretionary spending too is definitely slowing down and the consolidation in the healthcare is not done with. Overall there is a level of cautiousness in the market which has aggravated in the last three months. However, clients are spending on digital initiatives and our overall strategy is to address this need.

What has been the impact of Brexit on Cognizant?
The only thing we could quantify was the movement of the British pound. Various companies are trying to figure what will be the impact though it is too early to call. Individual clients are going through uncertainty and have become cautious in terms of spend. However, this does not pertain to just UK or the continent. It adds to the overall dampness in the macro economic environment. From a market opportunity point of view, clients are looking at reducing cost and move into next generation IT. That is the strategy we have adopted where we help our client run better and transform them into next generation IT.

How do you see Cognizant’s second quarter performance?
The highlight of the performance is definitely the strong sequential growth with $170 million in incremental revenue, which has been one of the best. There has been market volatility and we knew that it is coming but despite this we had strong incremental growth while continuing to gain market share However, the macro economic environment is not within our control but what we can control is the execution. We have definitely executed very well in this quarter and will continue to do so in the future also. Overall the growth has been broadbased across service lines and geographies.

Does digital fall under the category of discretionary spending which you say has been impacted?
Digital is something that is discretionary. We run the dual mandate for enterprises where we will take up legacy IT infrastructure, simplify and modernise it to make it digital ready. We are talking about next generation IT where we free up the dollars and reinvest in digital.
Cognizant has never looked at digital in isolation but it is an enterprise wide transformation which touches all parts of the organisaiton.

Has there been demand volatility in traditional IT services like BPO and infrastructure?
Overall our business like consulting, BPO, infrastructure has hit a $3 billion run rate which is growing faster than Cognizant’s average growth. There has been volatility across the board but there are few businesses which are seeing better traction than others. In today’s environment what we are seeing as an unique trend is that clients rather than looking at effort based pricing are focused on total cost of ownership. There is a transformation where clients are looking to buy outcome rather than services.

Will the lowered guidance impact hiring by Cognizant?
Our hiring is not based on looking at quarter to quarter but on an overall strategy. We are investing in digital and these are the capabilities which we are hiring.
However, given the market outlook it will be probably be a bit little less as we go along but it can cannot be construed as a quarterly phenomenon. We need to execute to a plan.