Diversification blues in India's IT sector

The quarterly results of the "big four" Indian IT firms -TCS, Infosys, Wipro and HCL Tech - were a mixed bag wherein two companies exceeded market expectations and the other two were laggards. At a broader level the results followed a predictable pattern. Vivek Sinha reports. Why things are the way they are

The quarterly results of the "big four" Indian IT firms -TCS, Infosys, Wipro and HCL Tech - were a mixed bag wherein two companies exceeded market expectations and the other two were laggards. At a broader level the results followed a predictable pattern. Here's how:

Even before the quarterly results of the season were out, IT analysts, and industry observers expected that while Infosys and Wipro would barely be able to meet expectations, both TCS and HCL Tech would perform better than their expectations.

And, this is not the story for one quarter rather it has been happening over several quarters in a row. The culprits here are deal closure delays and heavy reliance on discretionary IT spend - which is usually held back by client firms in times of financial crisis - that appears to affect Infosys and Wipro more than TCS and HCL Tech. In fact, both firms (Infosys and Wipro) are taking too long to diversify their revenue base.

SD Shibulal, CEO and MD of Infosys, conceded that consulting services, which relies on discretionary spending, gets close to 33% revenues for the company. This compares with the industry average of about 17% to 18%.

"Wipro's management has made several changes to the structure to align it more with the demand-generation process and increasing efficiency. We believe that, these initiatives have not yet started showing the expected results," said Dipen Shah, analyst, Kotak Securities.

TCS and HCL Tech were able to perform better than expectations as their reliance on discretionary IT spend is relatively lower. "Effective execution by TCS across existing and new services are allowing the company to increase its wallet share," said Shah.