At a time when the global economy is faltering, India's export-oriented software industry appears to be holding its ground, going by the third-quarter results of the leaders Tata Consultancy Services (TCS) and Infosys. Both firms have spoken of headwinds. While traditionally the third quarter is a weak one because of fewer working days, TCS, in addition, has had to contain the impact of the hugely disruptive floods in Chennai where a large section of its operations are based. In terms of revenue growth, this has till now been a weak year for TCS - which will have to put in an exceptional performance in the last quarter in order to equal its topline growth of 15.6 per cent in 2014-15. Infosys has no such problem, bettering its own previous performance as that had been quite dismal at 6.4 per cent. As things stand, the two are likely to end the year at around the same level of revenue growth. On bottomline growth, Infosys is likely to just miss the net margin of 23.1 per cent it achieved last year. However, in keeping with its traditional conservatism, it had begun the year with a cautious guidance, which it is revising upwards as the year heads for a close. On the other hand, TCS is likely to better its net margin of 21 per cent achieved last year. The upshot of this will be that the two will clock almost identical levels of net profitability during the year.
Overall, it seems that, going by the current numbers, there is little to choose between the two. But analysts have given a thumbs down to TCS and cheered Infosys. This is part of a recent pattern and is likely to reinforce current trends in the movement of their share prices. The market enthusiasm or the absence of it has to be seen in the context of the catching up that Infosys has been doing ever since Vishal Sikka took charge of the company. TCS, on the other hand, put in a stellar performance even while Infosys was struggling and it is quite natural if it now seeks to slow down a bit to recover its breath.
The existential problem for Indian information technology companies continues. Its traditional dynamic, of coasting along steadily on the basis of volume-based earnings ensured by maintenance contracts, has to give way to higher levels of automation. Their journey to the cloud requires less handholding by their software partners. In the digital age, information technology vendors have to help devise solutions instead of just executing them. This requires a massive upgrading of skills. The one bonus that can come the information technology majors' way is a big role in making India "smart" - and, perhaps, governments learning to pay their vendors on time.
