TCS is number one

IT industry shows it profits in both booms and busts

Now that the results for the last quarter of the major Indian information technology (IT) companies are available, it is apparent how recent currency fluctuations have taken their toll on clarity. There are three or four sets of numbers or forecasts available: in rupees, in dollars and in constant currencies (based on the relevant quarter's dollar-rupee exchange rate at various dates). As a result, it is rather difficult to not just get a measure of individual performances but also compare them. Firms that wish to counter suggestions that haven't done too well fish out the most flattering set of numbers, and thereby maintain that all is well. Indeed firms go further, and highlight the particular parameter that makes them look the best. Infosys has highlighted its volume growth, presumably because that is what makes it shine. Tata Consultancy Services (TCS), on the other hand, says it has not done all that well on volumes because, as is well known, there are so many holidays at the end of the year that volumes remain sluggish for the December quarter.

One way to examine how well a firm has done in the immediate past is to examine how good it claims the future looks. On the IT budgets of its clients in 2015, Infosys says the picture is mixed, with spending in a key sector like financial services likely to be flat or even marginally lower. TCS, meanwhile, sees no dips. More important, it sees discretionary spending (which creates demand for development work by software services companies) in the financial sector continuing. In plain old rupee terms, TCS has done better than Infosys in sequential and yearly revenue growth so far this financial year. In net margins, however, Infosys is a shade better. Wipro has also done well in the last quarter on several counts but has given prior notice that the fourth quarter of last year was exceptional, so comparisons with the current quarter's results could be problematic.

What has unequivocally attracted attention is that the quarterly profits of TCS (in rupee terms) have gone past those of Reliance Industries Ltd (RIL) for the first time. TCS, thus, becomes India's most profitable company. This is, in its own way, as much of a watershed as was Reliance's overtaking of Tata Steel in 1992-93. True, RIL has been hit at the moment by the global downturn in the oil and gas sector. But nevertheless this development underlines the fact that the information technology sector, particularly the part of it that Indian software companies occupy, is turning out to be remarkably steady and unaffected by business cycles. If global demand is up, firms spend more on IT and developing IT products; if global demand is down they still spend on IT to discover efficiencies with which to counter the downturn. Hence, the Indian IT story remains remarkably durable even as it enters its second quarter-century.