By Dhanya Ann Thoppil
- Agence France-Presse/Getty Images
- N. Chandrasekaran, chief executive of Tata Consultancy Services, expects demand for outsourcing services to be better in 2011.
The usually cohesive Indian outsourcing industry is split about what the demand for outsourcing services will look like in the calendar year 2011. The big three expect this year to top 2010, while others say last year’s spurt was an anomaly.
Earlier this month, India’s main software trade body Nasscom said it expects revenue growth from India’s software exports to likely speed up to 18.7% in the current fiscal year, which will end March 31, but then slow slightly to 16%-18% in the next 12 months. It, however, expects IT client budgets to rise 2%-4% in 2011.
IT firms calculate their forecasts and earnings for the fiscal year based on the budgets of their overseas clients who usually follow the calendar year.
Like Nasscom, Cognizant Technology Solutions Corp., the U.S.-headquartered outsourcing firm that has three-fourths of its employees in India, has lower demand expectations for 2011.
Cognizant saw revenue grow more than 40% in 2010 to $4.59 billion, which it attributes to a surge in spending on non-essential technology needs by clients following two years of lower investment because of the global downturn. Even so, for this year it has forecast a comparatively modest 26% growth in revenue.
“Discretionary spending I think remains quite healthy, but certainly you don’t have two years of spend all pent-up and released all at once” as happened in 2010, Gordon Coburn, the chief financial and operating officer at Cognizant, said in an analyst call last week.
The company also said it expects client IT budgets for 2011 to see a “modest single-digit increase.”
Of course, Cognizant started 2010 predicting a 20% growth in revenue and ended the year with double that. Maybe it’ll pull off an encore in 2011—especially if the chief of the country’s biggest outsourcer turns out to be right instead of Mr. Coburn.
N. Chandrasekaran, chief executive of India’s largest software exporter by revenue, Tata Consultancy Services Ltd., didn’t agree that last year was a one-off, due to pent-up demand. He expects demand for outsourcing services to be better in 2011.
“We’ve always maintained that there’s no pent-up demand,” Mr. Chandrasekaran told Dow Jones Newswires on the sidelines of a Nasscom event last week.
In the April-December period last year, Tata Consultancy posted the strongest growth in business volumes among its peers, which he says points to the fact that demand remains strong.
Fresh out of an organizational shake-up, Wipro Technologies, the information technology unit of India’s Wipro Ltd., agreed with Tata Consultancy on its client spending predictions. The firm will focus on certain segments this year—financial services and healthcare—where it expects to see “hyper growth,” T.K. Kurien, the new chief executive at Wipro Technologies, told reporters on the sidelines of the same event.
India’s second largest outsourcing firm, Infosys Technologies, appears to be trying to have it both ways. The firm started the current fiscal year that began on April 1 with a 16%-18% dollar revenue growth forecast, and now expects to close the year with a 25.7%-26.1% increase. Although it exceeded its own growth forecasts, Infosys saw slower growth in revenue from October-December, which it attributed to weaker demand due to the fact that clients had used up most of their IT budgets in a rush in the previous few quarters.
But last month, during the announcement of its financial results, the company said it expects client IT budgets to be up in 2011.
Scandal-hit Satyam Computer Services Ltd.—once India’s fourth-largest software exporter by sales, and now trying to make a bumpy recovery as part of the Mahindra Group—struck a different chord.
“It’s very clear that IT budgets are coming down,” C.P. Gurnani, chief executive of Satyam, who was also at last week’s event, told reporters.
So when will it become clearer which of these camps are right? When outsourcing firms post earnings statements for January-March, the last quarter of the Indian financial year, in April.
The local India market too will become a big opportunity going forward and the government could become a massive client.
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One should understand that Cognizant is an ultra conservative company. In the listed history of the company over 50 quarters, Cognizant revised its guidance downward only once, that too after Lehman when there was a free fall. It’s more conservative than Infosys as Infosys has revised its guidance downward on more three occasions just in the last eight quarters.
Comparing Cognizant with TCS is inappropriate as TCS does not give any guidance, quarterly or annual. So much for “Experiencing Certainty.”
So comparing qualitative commentary with quantitative commentary is odious. Frankly, this is like comparing a Toyota Prius to a Tata Nano… Cognizant afterall is a hybrid company!