• APRIL 18, 2001

Nasscom on the line

In December, 2000 while on air with CNBC India, I made the comment that - given the likelihood of a slowdown in the US economy - technology spend will decline and this decline will hurt the Indian software sector which, eventually, is a sub-set of the US technology sector. Companies that had tried to broaden their user base by seeking non-USA businesses would be somewhat sheltered. If my memory serves me correct, within a few days (maybe less) CNBC India aired comments by Mr. Premji of Wipro and the late Mr. Mehta of Nasscom that this was unlikely to happen. At that point in time, Nasscom had estimated that software exports from India would grow at about 50% for the 12-month period ending March 2002. Their argument was based on India’s low pricing and decent quality of software product and services. My argument was based on the un-common sense (but practical) approach by a business which states that, if times are bad, cut the guy you can control the least (the person farthest away) and stay geographically close to home till things get better. Not the business dynamic one would expect in an internet-age but, remember, the buyers of technology products are simple people who still wave their country’s flags and are pretty provincial in their outlook.

Well, the news is out in the open now and everyone knows that the decline in technology spend in USA is hurting India – the debate now is focused on: by how much? As per a report in The Times of India NASSCOM chairman Phiroz Vandrevala told reporters, “The industry is confident of a growth of between 40-45 per cent in 2001-02 which would translate to software exports of between $8.5 billion dollars to $9 billion”. Meanwhile, every week large companies in the US and Europe which supply the “plumbing” for the technology world of the future are slashing their estimates of what equipment they can sell in the near term and moaning about lack of visibility in revenues and profits. Infosys, my favourite stock (I own it and plan to buy more of it!) declared at a conference call that, based on their visibility, they could grow by 30% for this financial year. I am a fan of the management of Infosys and generally take what they say for granted. They have consistently grown higher than the industry average and, given their exceptional management, is there any reason that Infosys should grow less than the industry average in the future?

Well, either Infosys is too pessimistic or Nasscom is too optimistic. The actual fact may be that Infosys will “guide expectations higher” and Nasscom will “downgrade” as the months roll on and Infosys will still beat the sector averages. And, as we have learnt from the investor community, downgrades are punished and upgrades are rewarded. In fact Nasscom officials have said that their assumptions are based on “a picking up of the US economy later in the year could help the industry achieve its projected targets for the year”. Quite a gamble, if you ask me, to base your optimism on a recovery of a giant when the giant himself doesn’t know what tomorrow will bring. Meanwhile, Infosys continues to state what it sees – the actual may be higher or lower but chances are they will beat the rates of growth recorded by peers in their industry.

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