X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Indian IT staring at slowest growth in a decade? - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Jun 8, 2010

    Indian IT staring at slowest growth in a decade?

    If someone told this to you a few years ago, you would have probably laughed them away. But the fact is that the poster boys of Indian outsourcing are seeing their growth rates slipping rapidly. From as high as 30-40% to single-digits in 2010. FY10 for the IT sector was the year of sluggish business and embarrassingly poor growth rates. Not even the major players, with their large scale and Fortune 500 clients such as TCS, Infosys and Wipro were immune to this phenomenon.

    The global financial meltdown disturbed India's sun-shine industry. It is one of the sectors most reliant on global economic sentiment and currency swings. The Indian IT industry which works on the offshore service delivery model derives most of its revenues from developed economies. Particularly those in North America and Europe. It also caters mainly to the banking and financial services vertical (BFSI) which was the worst hit in the crisis. The downturn left clients with barely enough cash to cover operations. IT companies thus saw a significant dip in demand and a surge in pricing pressures. What followed is reflected in the expectedly dismal performance of the big and small IT companies in India during the last fiscal.

    Foreign exchange rates: The joker in the pack
    The top 3 IT majors (TCS, Infosys and Wipro) witnessed a significant deceleration in growth. From registering an average growth rate of 27% in FY09 it reached a dismal 6% in FY10. Infosys, the fastest grower in 2009, speeding ahead at a rate of 30%, witnessed the lowest growth in this year at less than 5%.

    Data Source: Companies, Equitymaster research

    In terms of profits however the trend was surprising due to the joker in the pack - 'forex rates'. The top 3 players achieved a 2% higher profit growth on an average in FY10 than the previous fiscal. Profit growth was a respectable 19% this fiscal. Infosys was again the laggard, with TCS stealing the show with a 33% increase. This volatility in performance was mainly on the back of forex movements. Better operating performance was also witnessed due to lower employee costs.

    Vendor consolidation and easing of pricing pressures can help the companies to sustain a decent performance in profitability. Cost management undertaken by all the companies will also help them in the long run. But, since salary increases were put on hold in the recession, they are now back with a bang. Most companies have indicated wage hikes at onsite as well as offshore levels.

    Mid and small sized IT companies like Tech Mahindra and 3i-infotech faced the brunt of high interest costs. Revenue growth of small players like NIIT Technologies, KPIT and Zylog Systems also remained muted. These companies witnessed lower volumes from existing customers as well as intense pricing pressure due to lack of scalability.

    What the future holds for the sector?
    During the last quarter of FY10, volumes as well as order backlogs have shown some revival. One of the major signs of this labour intensive industry's prospects improving is an uptick in hiring. Infosys and TCS plan to hire around 30,000 employees this fiscal. Other major companies also have announced hiring plans as well as wage hikes to curb attrition. With the slowdown in Europe , companies are looking at tapping other lucrative markets, including India. Also they are refocusing on the US, their bread and butter for years.

    Tech research firm, Forrester has projected growth of 9.3% for 2010. However, it believes that there will be a slow paced growth in allocation of large outsourcing projects. We can see evidence of the same as none of the big players, except HCL Tech have so far announced new large contract value deals (US$ 500 m plus). TCS's US $ 900 m contract with Britain's Personal Accounts Delivery Authority is still under contention with the new government. Outsourcing as an industry is slated to grow. However big deals may be spread out over a number of players. Investors may thus have to be content with more reasonable growth from this sector in the medium term.

     

     

    Equitymaster requests your view! Post a comment on "Indian IT staring at slowest growth in a decade?". Click here!

      
     

    More Views on News

    Tech Mahindra: Our Revised View (Quarterly Results Update - Detailed)

    Aug 2, 2017

    A better than expected turnaround in performance results in a change in view.

    Wipro: A Decent Start to the Year (Quarterly Results Update - Detailed)

    Jul 27, 2017

    Digital services drive growth for Wipro in 1QFY18.

    Infosys: A Decent Start to FY18 (Quarterly Results Update - Detailed)

    Jul 14, 2017

    Infosys starts FY18 on an encouraging note with a stable performance.

    Ankit Shah's First Five Insider Recommendations (The 5 Minute Wrapup)

    Aug 5, 2017

    How to get exclusive insider recommendations from Ankit Shah.

    TCS: Currency Volatility Plays Spoilsport (Quarterly Results Update - Detailed)

    Jul 14, 2017

    TCS starts FY18 decently despite an adverse currency impact.

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Profitable Investment in the History of the World(Vivek Kaul's Diary)

    Aug 8, 2017

    'Yes, it looks like a bubble. And, yes, it's like buying a lottery ticket. But there's something happening that has never happened before. It's an evolutionary leap in money itself.'

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE IT


    Aug 21, 2017 (Close)

    S&P BSE IT 5-YR ANALYSIS

    COMPARE COMPANY

    MARKET STATS