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India’s information technology sector, after what seems like years, is back to where it once was: optimistic about the future.
The Big Four of India’s software-led services industry that includes business process outsourcing (BPO) pleasantly surprised the markets this month with solid results for the January-March quarter. All four — Tata Consultancy Services (TCS), Infosys, Wipro and HCL Technologies — showed numbers that were better than analyst expectations that dispelled concerns about persisting worries in advanced economies affecting their business.
They may be on sound ground. US and Europe among regions and financial services and manufacturing among industry segments account for two-thirds of revenues for the industry – and these are showing significant growth prospects, putting behind the scars of the 2008 Wall Street crisis that caused ripples across the world.
“The expectation from this quarter (Jan-March) was not that great, yet the companies have exceeded our expectations. Moreover, it is the confidence in management commentary that makes us bullish about the future growth prospects of the IT sector,” said Ambareesh Baliga, global partner at brokerage firm Edelweiss Financial Services.
This is despite the fact that January-March is a traditionally weak quarter in which clients are busy finalising their IT budgets. They start offering IT projects mostly starting April.
Also, the big companies had to grow on a large base. So, strong double-digits growth offered a lot to cheer about.
“The steady improvement in global economy, coupled with the exciting pace of technological advancements presents us with opportunities to create innovative solutions, compete and succeed,” said billionaire Azim Premji, Wipro’s chairman.
He was referring to technological motifs such as cloud computing, the “Internet of things” that connects machines that spew data and social media that are collectively yielding opportunities in creation and maintenance of software and provision of analytical and support services.
Even otherwise, the diversification efforts that began in Indian IT after the collapse of Lehman Brothers in 2008 have begun to bear fruit. Today, markets in the Asia-Pacific and West Asia contribute 10% to 13% of their revenues — and this is growing at a steady pace.
“We have expanded our presence in newer markets…(and) our strategic investments include those in digital technologies… helping us shape new market trends successfully,” said N Chandrasekaran, CEO of TCS.
HCL Tech’s CEO Anant Gupta said the company expects good growth from the $120 billion re-bid market (IT contracts that come up for re-negotiation). Infosys, too, appeared to have put the ghosts of a controversial management rejig behind as it beat market expectations to post a 25% rise in net profits.
For tech sector employees, all this is good news. TCS plans an average salary increase of about 10%, Infosys 7% and Wipro 8%. HCL is yet to announce a wage hike. TCS plans to hire close 55,000 in the new fiscal year.
However, minor irritants in the form of visa issues in the US and a strengthening rupee could play spoilers. Overall, the picture is rosier than it has been in a long while.