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The top four Indian IT services companies delivered 21.5 per cent average revenue growth for three months ended September 2011 – a strong showing despite the Euro Zone worries and weakness in the US.
In September quarter, the combined revenue of Tata Consultancy Services, Infosys, Wipro and HCL Technologies grew 8 per cent over the quarter ended June, helped by rupee depreciation against the dollar and volume growth (a measure of person months billed). Typically, July-September tends to be strong months for IT services business.
The management of these companies have sounded a note of caution on the macro uncertainties in the key markets. Yet many IT analysts believe that Indian technology service providers will benefit from first-time outsourcers in the Europe and rising demand for platforms such as cloud computing, in the coming quarters. “We expect that the slowdown in Europe would open the opportunity for Tier-1 Indian IT companies,” says Mr Shashi Bhushan, Senior Research Analyst at Prabhudas Lilladher.
Improvements in the economic scenario in the US and the currency depreciation would further help Indian vendors, he added. “There could be quarterly blips but in the next 4-6 quarters, we do not think that companies will find it difficult to deliver growth in the high teens,” Mr Bhushan pointed out.
A strong report card by global tech majors such as Oracle and SAP has also added to the cheer.
“Most service providers are positive about the demand environment but they are treading with caution. The good news is that we have not seen order cancellations or delays. On the other hand, we there have seen large deal wins from TCS and HCL Technologies, and the hiring momentum continues,” said Mr Rishi Maheshwari, VP Research at Enam Asset Management.
During the quarter, the average volume growth for large IT companies was 5.5 per cent as compared to 4.3 per cent in the previous three months. TCS continued to lead the pack with strong volume growth of 6.25 per cent, notes retail brokerage firm Sharekhan in its earnings review report.
Mr Sid Pai, Partner & Managing Director of sourcing advisory firm TPI India, said that “uncertainty” and not slowdown was the core issue.
Outsourcing demand
“If clients return to growth, the technology vendors will benefit from discretionary spends and new projects. If there is a lack of growth (for clients), there will still be demand for outsourcing because clients would want to cut costs…But the current problem is that of uncertainty,” Mr Pai said.
He said the IT deal pipeline continues to be strong. But whether or not the demand would convert into actual award of contracts would be apparent only in October-December quarter.
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