India’s export-oriented information technology (IT) services industry is so strongly coupled with the global economy in general and developed economies in particular that it has come to faithfully reflect global ups and downs. But the swings have been staggered and modulated by the need for firms in developed economies to beat recession with productivity gains, resulting in a continued pipeline of orders for Indian IT. The global economy and the developed countries, which were severely impacted by the financial crisis of 2008, staged a brief recovery in 2010, to run into difficulties again from the following year. According to the Organisation for Economic Co-operation and Development (OECD), an uptick can be expected only in 2013. Mirroring this, Indian IT majors slowed down in 2009, recovered momentum in 2010 and are now foreseeing a challenging year ahead. Decoupling from the West was also aided in recent years by the growth in domestic demand. This benefited mainly Tata Consultancy Services (TCS) and Wipro. But now Wipro sees the recent slowdown in the Indian economy and indecision in the government affecting both private and government spending, thus adding to the challenges ahead.
Within this overall scenario, it is TCS that has clearly forged ahead, leaving Infosys, the earlier star performer, behind. In the last six quarters, TCS has posted exceptional top-line growth, bettering Infosys by several percentage points. In terms of bottom lines, TCS improved its net margin remarkably in 2010-11, narrowing its difference with Infosys to one percentage point. The difference in the performance of the two has been particularly noticeable in the last quarter. The top line of both companies has been under pressure but, where Infosys actually saw a sequential contraction, TCS held its ground. As far as the bottom line is concerned, TCS posted substantial sequential growth whereas Infosys again saw contraction. Consequently, the gap between their net margins narrowed. But perhaps the greatest difference between TCS and others is in the mind — how they view the future. TCS is far more bullish about the future than the others — though all see pressure ahead, particularly in discretionary spending. TCS’ optimism has resulted from the success it has met by pursuing rapid top-line growth despite having to work on a high base. Infosys, on the other hand, appears to be paying the price of excessive caution and not making any compromise on margins.
TCS has attracted attention by being the first Indian company to cross the $10-billion revenue mark in 2011-12 but here, also, the ups and downs of the global economy and its impact on Indian IT players are instructive. From the middle of the last decade till into 2007, TCS was articulating a challenging goal — “ten by ten”, or the achievement of $10 billion in revenue by 2010. Then came the global financial crisis, and the company has been able to achieve the goal only two years later than originally targeted. Robust self-confidence born out of recent exceptional performance is natural, but the volatile global economy can upset many a well laid-out national plan. Indian IT can do better than its main market only up to a point.