)
Months after the reins of Infosys were handed over to an outsider, four of its founders — N R Narayana Murthy, Nandan Nilekani, K Dinesh and S D Shibulal — collectively sold 2.8 per cent in Infosys in a block deal. Insider selling is something the market tracks closely. In this case too, investors are right in questioning whether the sun is setting on Indian information technology (IT). The September quarter numbers for most technology giants were lacklustre, which dragged stock prices down. Owing to the disruptive cloud-based platforms, enterprise applications services are at potential risk. These enterprise application services account for 15-30 per cent total revenues of Indian IT vendors, based on the method of their classification, says HDFC Securities.
New digital applications and platforms will result in revenue leakage for Indian IT vendors, but the agile ones can capitalise on the new service lines, say analysts. While some players including Wipro and Infosys face execution risks, others still have plenty of steam left, say analysts, as they are agile enough to respond to the digital needs of clients and continue to gain market share in the outsourcing business.
Indian IT is slowly taking market share away from the global players by 50-100 basis points of market share each year. BNP Paribas believes if this continues for the next three years, it would result in revenue growth of 11-14 per cent for Indian vendors. This is still healthy even if not as high as the pre-2008 growth rates of more than 20 per cent. HCL Tech has increased its market share from 0.30 per cent in 2010 to 0.48 per cent in 2013, while Infosys has grown its share from 0.7 per cent to 0.8 per cent. The biggest gainer is TCS, whose share swelled from 0.90 per cent in 2010 to 1.3 per cent in 2013.
The deal pipeline shows promise for most Indian vendors. Stable macro-economic conditions in the US could also boost spending on outsourcing. The evidence of another year of positive returns also stems from the change in Cognizant’s year-on-year growth guidance for 2014 - from 14 per cent to 14.6 per cent. Employee additions have also been healthy, say analysts.
Improving US macro data and corporate margins at new highs could lead to IT services spending shifting away from largely cost-cutting to more discretionary projects, says Abhiram Eleswarapu of BNP Paribas. Infosys and Tech Mahindra are his top picks, while Persistent Systems and Mindtree are strong mid-cap stories.
