N Chandrasekaran, managing director and CEO of Tata Consultancy Services, the country’s largest information technology services provider, talks to Shivani Shinde on the growth outlook and why the current slowdown is unlike the one in 2008. Edited excerpts:
TCS will end FY12 by hiring almost 66,000 employees, 6,000 more than what you had earlier indicated. Does this mean the demand outlook is stable?
The demand environment is quite good. Some of the positive indicators we have had in this quarter are a good deal flow in the UK, US and continental Europe, India and the Asia-Pacific. These deals are transformational, are from the BPO (business process outsourcing) sector, process driven, etc. Our order book is very good and the total value of the pipeline is also looking good. More important, the telecom sector in which we were having problems has closed with good deals and from here, we will see only growth. So, given all these indicators, we do not see any need to be cautious and that is why we are going ahead with our recruitment.
But you have said discretionary spends for the company will be difficult.
The pressure in the discretionary spends that we are seeing seems to be more of a Q3 and Q4 phenomenon. Yes, there will be delays but I think we will catch up with growth. But there are no cancellations or any major negative news from any of our majority markets. (Revenue from discretionary spend for TCS is 22-24 per cent).
What is the demand environment from clients’ perspective. Is the current scenario anywhere comparable to the post-Lehman crash?
In 2008, people /companies did not know what was happening. The difference this time is that every company, whether in Europe or any global firm having business in the euro region, knows the macro environment is going to take a while to recover. There is a disconnect between performance of companies and the sovereign debt of countries. Meanwhile, companies have to grow and deliver on performance. They’re looking at their strategies, changing their cost structure, looking at newer geographies and all their tech spend is based on achieving these things. And, they are looking at these spends in a systematic and much more certain manner than before.
Analyst believe that sustaining higher margins is difficult in this market and perhaps Indian firms should focus on growth.
Over the past couple of years, we have performed on both parameters. I do not think you can get better growth by compromising on margins or better margins by compromising on quality growth. You might do it in a particular quarter or in a year. If you keep sacrificing margins, you lose the flexibility on investment. Margins are extremely critical for our flexibility in investments, especially since we are operating in an environment where technology is changing fast and new business models are emerging.
I want to have the liberty to invest in things we want to do.
I do not buy the argument that one must focus on market share and then look at margins. I also believe it is possible to deal with growth without being irrational about margins.
With the rupee being volatile, do you think TCS will change is hedging policy?
We had adjusted to do short-term hedging; we will continue doing this. We have discontinued a long-term hedging strategy. (TCS has total hedges of $1.7 billion and of this, its hedged position for Q4 is $1.3 billion).
With elections round the corner in the US, do you expect any shockers in terms of visa changes or anti-outsourcing comment?
It will be status quo. There will be more protectionism rhetoric and the visa issue will re-emerge. We have worked with these issues and will continue doing it. From a company viewpoint, we will continue to hire more locals, not only in the US, but in Europe and emerging markets like Latin America.
Apart from the US and Europe, which other markets will fuel growth?
Latin America has done well this quarter, with 18.6 per cent growth. We will see this market growing. Continental Europe has done well and firms here have started to accept and adopt our model. The Middle East and APAC will grow. India is a cyclical market; while it did well this quarter, we will have to see how Q4 pans out.
What about the Diligenta space? Do we see another deal like Friends Life?
It will certainly open up for more deals. But the problem with that business is that sales cycle are very long. Friends took almost two years. We are in talks with another deal but it will take 18 months or so to work out.