Tech firms hopeful on better market environment

Senior leaders from top four Indian IT firms say business visibility has improved

After several years of 'cautious optimism' and 'uncertainty', Indian information technology (IT) services sector now seems to be clear about a better growth path. Four of India’s major IT firms — Tata Consultancy Services, Infosys, Wipro and HCL Technologies — unanimously stated they were witnessing an improved business environment and greater visibility.

At an investor forum hosted by Hong Kong-based research and brokerage firm CLSA last week, leaders from the four firms said the demand from clients had improved, against previous years. They expect a likely improvement in their margins.

While India's largest IT services player TCS has been bullish on growth in the past few years, others like Infosys, Wipro and HCL Technologies have remained cautious and witnessed sluggish growth.

However, Infosys Chief Operating Officer U B Pravin Rao said, “We are turning in the right direction. We have not seen any dramatic changes in the market. The pipeline is decent. Some of the discretionary spend is coming back and we are not seeing too many surprises either way. In some industries we are seeing better traction and in some of the industries challenges continue.” HCL Technologies Chief Financial Officer Anil Chanana said his company was witnessing a growth in traction in Europe. He felt the market was warming up to the idea of offshoring business.

While, currently, revenues from social, mobile, analytics and cloud may not be big enough to significantly add to the profits of these large companies, it is seen as the reason for the return of discretionary spending to the market after a gap of several years.

According to experts, having strong capabilities around SMAC may become a key for these large players to stay ahead in business.

According to some estimates, SMAC’s expected compounded annual growth rate is 50 per cent in the next three to five years, faster than any other technology segment.

“Deal sizes (in SMAC) are growing and this is increasingly driving significant component of technology refresh in core technology of several enterprises and deal flow,” CLSA said in note. "Discretionary spending has returned after several years of lull via SMAC services as opposed to ERP (enterprise resource planning) implementation."