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Software: Uncertainty continues - Views on News from Equitymaster
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  • Sep 26, 2002

    Software: Uncertainty continues

    The global IT industry is undergoing a prolonged slowdown and downsizing has become the norm. Indian software companies too have seen their share of slowdown in recruitment, if not outright downsizing. However, the software companies pleasantly surprised markets with a sudden spurt in hiring in the quarter ended June 2002. So what seems to be the reason for this hiring spree? In this article we look at the factors responsible for this optimistic view on recruitment.

    One of the most important reasons for the renewed growth in hiring is the fact that large Indian software companies saw a relatively better business environment in the quarter ended June 02 than in the past. Infosys, for example, was able to post a strong topline growth. The company reported a 12% QoQ (Quarter on Quarter) growth in revenues for the quarter, which was the highest in the past five quarters. The growth was largely based on volumes and the company continued to witness pressure on billing rates. For the first quarter Infosys added 556 people. Another example is that of HCL Tech, which has posted a 6% QoQ growth in its topline for the quarter, ended June 02. Halting its consecutive sequential decline in topline for the past three quarters. HCL Tech added 518 new employees in the same period.

    Part of the hiring seen, was also due to these companies recruiting for the their ITES subsidiaries. As the US economy faces slowdown, increased attention is being paid by large corporations to cut costs. This has prompted a large number of companies to outsource low value adding tasks like transactions processing, payroll processing, call centers and the likes to offshore locations where the costs are considerably lower. India due to its inherent strength as a low cost high quality service provider is slowly capturing this segment, which is called Information Technology Enabled Services (ITES). According to NASSCOM, the ITES segment has grown to US$1.4 bn (Rs 69 bn) in FY02 a growth of 68% compared to FY01 and is expected to grow by 65% in FY03. The inherent growth potential itself is prompting many software companies to hire aggressively in this business segment.

    To put things in perspective Infosys recruited 556 people in the quarter ended June 02, of this 121 were for Progeon its BPO subsidiary of Infosys. HCL Technologies on the other hand recruited 518 new employees in the same period out of which 48 were for its call centre subsidiary e-serve. NASSCOM estimates of 1.1 m jobs by the year 2008 in the ITES segment alone indicate an immense latent potential. Latest company to jump on the ITES bandwagon is Satyam with its subsidiary called Nipuna.

    However, it is too early to call this a certain turnaround in the fortunes of the Indian software industry, as there is still a lot of uncertainty as far as the fate of the US economy is concerned. Fortunes of the domestic software industry are very much dependent on the US economy as nearly 60% of the Indian software exports are meant for the US markets. But one thing is certain the IT industry in India with its low cost high quality proposition holds a lot of promise for the future.



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