There are conflicting signals as to where the Indian IT sector is headed in 2012. While
Infosys has sounded a note of caution - they almost always do being
a conservative company - December quarter results from Tata Consultancy Services (TCS) and HCL Technologies suggest that growth may not be an issue for companies that are nimble-footed, even in a challenging economic climate.
While
HCL reported a stellar volume growth of 4.9 per cent earlier on Tuesday,
TCS grew at 3.2 per cent . However, TCS, India's largest IT exporter, reported growth across all markets and sectors. Client additions remained strong and deal closures were robust. The firm added almost 12,000 net employees - four times that of Infosys in the quarter.
Attrition has cooled for all companies; TCS has the lowest in the industry at 12.8 per cent. Infosys' attrition rate has dropped from 17.5 per cent in the year-ago period to 15.4 per cent now.
The low attrition, however, does not indicate a jobs recession in the market - certainly not at the industry's bottom of the people pyramid. TCS plans to hire at least 15,000 in the March quarter.
"The management commentary does not indicate any jobs cut back as of yet. However, if the demand moderates going ahead, it could reflect in the hiring numbers," Sanjeev Hota of brokerage firm Sharekhan said.
Some moderation in volume growth is now expected as enterprises in Europe delay discretionary spending. IT budgets may slightly decline in 2012 compared to last year, but the offshoring component is expected to increase - there will be vendor consolidation in the quarters ahead and lot of work can shift to Indian service providers, particularly to those who can trade volumes for lower prices.
IT projects, worth a mammoth $47 billion, are up for renewal this year. Pricing will not be anyone's forte. Going ahead, IT vendors can pass on the gains due to rupee depreciation to their clients.
Vendor consolidation, in fact, is already becoming a reality - a fact alluded to by HCL on Tuesday. The firm has won four deals in BFSI out of crisis-stung Europe because of supplier consolidation.
It would be worthwhile looking at Infosys' strategy over the next one year. The firm prizes its quality of margins and one has to wait and watch on whether its new consulting and platforms-led approach can make up for loses in the commoditized parts of the business.
"The bottom line is actually the service mix. A large portion of deals won by TCS and HCL is transformational and is infrastructure led. Also, some of the growth has come from total outsourcing projects and in services deals with multinational captives. This has been Infosys' Achilles heel," TR Madan Mohan, managing partner of consulting firm Browne & Mohan noted.
Partha Iyengar, an analyst from Gartner, believes that 2012 will see a widening of the gap between companies with a 'can do' and 'cannot do' style of management in the offshore space - a new pecking order could emerge.
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