Email
Print
ShareMumbai/Bangalore: Though spending on technology continues to remain sluggish, information technology (IT) firms are becoming increasingly optimistic about recovery in the second half of the fiscal.
The three behemoths of the Indian IT industry -- Tata Consultancy Services (TCS), Infosys Technologies and Wipro -- all see a turnaround at the next corner.
Global business fundamentals, however, continue to be weak and opinions are divided on when the industry can uncork the bubbly anytime soon.
In a recent meeting with JM Financial analysts, TCS officials said no shocks had been seen in the global economy lately and so, things may get better by the second half.
In their report on Friday, the analysts Diviya Nagarajan and Subhashini Gurumurthy said, "TCS cited the absence of unforeseen disruptions to the global economy as a positive step towards stabilisation in the economy."
The officials said TCS had managed to bag some new projects and had even resumed dialogue with customers, leading the IT giant to believe the end of September quarter would see the beginning of an upward trend.
Infosys and Wipro, the second and third largest IT firms in the country, shared their bigger rival's sentiment.
Ganesh Natarajan, a member on the council of chairmen at industry body Nasscom, expects pent-up demand for IT services to be released in the fourth quarter of this fiscal and limited recovery by mid-2010.
"On the whole, this year will have single-digit growth as the first half will be flat. Revenue growth in the second half will be 15% higher than current levels," he said.
But the night might well be the darkest before dawn.
The industry continues to grapple with budget cuts, pricing pressures and lower utilisation rates. Even though they see a silver lining, IT service providers are not rushing to revise their guidance for the fiscal. Infosys and Wipro had both lowered their revenue guidance for the fiscal at the end of financial year 2008-09.
And with good reason -- Infosys saw 89% of its clients snip IT budgets. Of these, 60% slashed spending by as much as 10%.The company predicts that its earnings per share (EPS) would decline between 3.3% and 7.6% this year.
Wipro's outlook isn't any better. For the first quarter of the fiscal, it has forecast revenues of $1.009-1.025 billion from its global IT services business, down from $1.058 billion in the March quarter.
R Chandrasekaran, president and managing director (global delivery), Cognizant, is rather cautious about a change in scenario. "We don't think it would be prudent right now to assume or forecast any sort of a second-half economic recovery by looking at the rest of 2009. In our planning and guidance, we have assumed that the economy will continue to be roughly where it is today," he said.
Chandrasekaran doesn't see any triggers that could accelerate the momentum in the near future.
Accenture, the global IT and management consultancy firm, has cut its revenue guidance given at the end of FY09 further due to "the continued deterioration in its consultancy business."
Analysts Viju George and Kunal Sangoi of Edelweiss Securities, in their June 29 report, said while management (Accenture) commentary indicated hopes of recovery in second half of FY10, the cut in FY09 revenue guidance reflects a more sober picture on the ground."
Similarly, Diptarup Chakraborty, an analyst at research firm Gartner India, doesn't see much weight in predictions of early recovery. "The recovery of a people-driven sector is judged by normalcy in recruitment. By that standard India's IT sector recovery is not yet on the horizon as IT firms go slow on their commitments of hiring this calendar," he said.
Siddharth Pai, partner and managing director of IT research firm TPI India, said though pick-up in hiring may not be the best criterion to gauge recovery, one has to see if there is steady utilisation of people, which indicates continued business. "IT firms have maintained utilisation rates of 70-80% for a long time. When demand returns, this may go up to 80-90%. It is then that recruitment drive will start for building capable bench strength to support impending business demand," Pai said.
Most experts, however, feel the domestic business will pick up faster. Gartner's Chakraborty said, "For the international business of IT service firms, I don't see the recovery happening before the first quarter of financial year 2010-11 but the domestic business will look up by September-October this year due to government spending on infrastructure and e-governance projects," he said.
But Binod H R, senior vice president and head of India business at Infosys, cautioned against betting big on government projects.
"We have to wait and see what happens to the projects announced by the government. They usually have a long drawn process. It will take more than six months before the actual action begins on these projects," he said.
