The $150-billion-plus Indian IT industry witnessed the performance of the top tier multi-billion dollar companies—Tata Consultancy Services (TCS), Infosys, Wipro and HCL Technologies for the second quarter of FY18. The writing on the wall is very clear: the industry will walk the path of a single digit growth with a strong focus on the operational parameters to ensure higher profitability. In these times, when business is slowing down with uncertainty remaining on the minds of the clients on where exactly to invest, the top tier Indian IT companies are betting that the digital play will be the next big growth area. Though, the digital arena is still a nascent segment, the expectation is that it would become mainstream in the near future.
However, the mainstay for the Indian IT industry still remains service deliveries like application development and maintenance, testing infrastructure though these are slowly being disrupted. In the same vein, business verticals like BFSI, retail, manufacturing and healthcare are the big revenue generators. The second quarter of the fiscal is considered to be a stronger period for the Indian IT industry with the expectation that there would be a buoyancy in revenue growth but none of these hopes were matched. For most of the top tier companies, the growth in US dollar terms on a reported basis ranged 2-3% on an average, though in constant currency it was around the 2% range. It has been a mixed bag for the large Indian IT companies with entities such as TCS, Infosys still finding it challenging to generate higher volume of business from the BFSI segment while Wipro could beat the expectations. Similar was the trend in areas such as healthcare and retail.
The Indian IT industry is also transitioning from delivering services through the traditional tools and technologies to a completely different environment which relies on automation, machine learning, artificial intelligence among others. Encompassing all this is the whole new world of digital. As TCS CEO Rajesh Gopinathan said, “We continue to gain share in the fast growing digital spend of our customers, evident in our industry-leading digital growth in Q2. By sharpening our focus on individual components of the digital service stack, we have been able to bring to bear the full power of our contextual knowledge, research and innovation, and investments in location-independent agile, automation and cloud on our customers’ transformational imperatives and become a trusted partner in their Business 4.0 journeys.” The essence for the IT majors is that even as they find it challenging to record double digit growth rate for FY18, they remain focused on the future opportunities. Sanjoy Sen, doctoral research scholar, Aston Business School, UK, said, “The TCS results on the back of a significant growth in its digital business is a reminder of the famous quote that “the future is finally here, it’s just not evenly distributed”. TCS, like the other major Indian IT companies, continued to persist in investing in the futuristic digital business and emerging technology solutions despite several macro-economic push backs and heightened uncertainty.”
The second quarter of FY18 demonstrated one singular quality among all the top tier Indian IT companies—razor-sharp focus on execution and productivity improvements. All of them managed to maintain or improve their operating profit margins during the quarter, which shows that they were able to push on various internal levers like cost optimisation. “We continue to focus on executing on the theme of software enabled services and on accelerating growth of our new services portfolio,” said UB Pravin Rao, interim CEO and managing director, Infosys. On the other hand, Wipro CEO Abidali Neemuchwala said, “We surpassed the milestone of $2 billion in quarterly revenues for IT services on the back of rigorous execution of our strategy.”
The overall focus on optimisation also took its toll on the employee headcount for some of the companies. For example, Infosys for two consecutive quarters witnessed more people leaving the company than joining them. Similarly, in the case of Wipro, its headcount reduced by over 3,000 people in the second quarter of FY18 when compared to first quarter. Among the top tier companies, HCL Technologies is the only one which has maintained a revenue growth guidance in double digits. C Vijayakumar, president and CEO, HCL Technologies, said, “This quarter marks the end of H1 of FY18 which has seen us deliver a strong broad–based growth across businesses. This growth trajectory is a result of the momentum our Mode 2 and Mode 3 services have created in the market even as our Mode 1 services continue to punch their weight.” There is still a period of uncertainty for the Indian IT industry, where all the cylinders are not firing in unison. Every quarter shows if one growth engine accelerates, there is something else which acts a dampener. In an age where there are fast changing technologies, the sector is also evolving with the times.