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| Holding the fort | | The future of IT is likely to worsen as there is no end to the recession or the financial sector turmoil |
| Business Standard / New Delhi Jan 22, 2009, 00:17 IST |
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The October-December results of the leading Indian software firms appear better than they actually are, thanks to a 3 per cent depreciation of the rupee against the US dollar during the period. All the big three firms — TCS, Infosys and Wipro — have posted on a consolidated basis fairly healthy top line growth, in the 24-35 per cent range. They have also more or less maintained their net margins, in terms of their own past trends. Infosys, as is usual, leads the pack with a net margin of 28.4 per cent, while Wipro (which also has non-IT businesses) has clocked 15.1 per cent, both keeping to their own trends. It is TCS which is off the trend, posting a fall of nearly two percentage points in the last six months compared to the previous six—apparently because of currency losses. The numbers not only look different when restated in dollar terms, the outlook projected by the firms is also distinctly sombre. Both Infosys and Wipro (IT services business) have lowered their dollar forecasts, with Infosys doing it for the second time. The future is likely to be tough as the firms are likely to face serious pricing pressure. Pricing has been stable in the reporting quarter mainly because of the rupee’s decline. The pricing leader Infosys has in fact posted a 1.8 per cent decline in price realisation, measured in constant currency terms.
The reason why the immediate future is likely to be worse is that there is no end or even lessening of the two key adverse factors that have leaned on the brakes — recession in the developed world and turmoil in the financial sector. This is why the software leaders are not even trying to talk up sentiment. Instead they are dwelling on cost control and on holding the fort. Wipro Chairman Azim Premji has said that “recessions do not last, resilient companies do … and come out stronger”. In fact, the most optimistic scenario is that when it is all over and the global economy is back on even keel, the Indian leaders will be stronger than they are now by virtue of having cut costs and acquired market share in the interim. All the three firms have added significant new clients and announced multi-year, multi-million dollar deals. The downside is of course that even as new business is being acquired, large old customers (the latest is Nortel) are going under, requiring a redoing of sums to determine the value of the business that those entities can now bring. As all leading Indian software firms have a lot of cash in the bank, they will easily tide over the present downturn. It is the job market which will have to bear the brunt of the hard times. Declared recruitment targets for the current year are likely to be met, but the proportion of freshers among the new recruits is likely to go up in relation to lateral entries. Net intake among the latter will be negligible. But in the next year (2009-10), the picture will be uniformly bleak for all job seekers. It is unsurprising that TCS has declared that it will miss its target of becoming a $10 billion firm by 2010.
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