Industry leader Tata Consultancy Services seems to have increased its lead over number two rival Infosys, which is struggling to stay ahead of the industry growth average after more than a decade as a bellwether. Analysts say this could be because has done better in emerging markets such as China.
Besides heavy dependence on recession-hit US and Europe, the recent leadership transformation in an already shaky business environment and the company’s inability to keep prices up for clients is at the heart of Infosys’ below-than-expected performance.
While TCS is poised to beat industry body Nasscom’s estimate of 10-12% growth for the full-year, Infosys revised its forecast downwards to 5%, much lower than the industry average.
“For the last seven quarters the gap between TCS and Infosys has been widening. One reason could be the difference in geographic spread of business,” said Ajay Parmar, head, institutional equities, Emkay Global Financial Services.
“TCS has a better presence in emerging markets and that might have helped it weather the downturn more effectively,” said Ankita Somany, IT analyst with Angel Broking.
The US and Europe account for 80% of TCS’ revenue and 86% of Infosys. “Advanced economies are reeling under slowdown while major corporations invest in China, Latin America and India. Hence IT services are growing faster in these, although advanced markets still account for bulk of business,” said Somany.
TCS, for instance, is already building its business in China.
“The opportunity for software companies in China is so huge,” S Mahalingam, CFO, TCS had told Hindustan Times earlier.
“On a long-term basis, it could be even beyond $10 billion. We have identified 2-3 verticals with great potential in Chinam” Mahalingam added.
“There could be a range of factors why Infosys misses guidance repeatedly. It could be client-specific in some cases and pricing in other cases,” said another analyst who did not want to be identified.
Many question the timing of Infosys' transformation initiatives - shifting focus to big ticket businesses such as consulting and integration and product and platforms — when clients hesitate putting money in high-value discretionary projects.
However, managing director and chief executive officer SD Shibulal remains confident. "When the situation stabilises we will come out ahead," he told Hindustan Times.