|IT services: Happy days could be here
again for techies like these on Infosys' campus in Bangalore
First, the bad
news: there is no global recovery in it yet. Now, the good news:
Despite-or may be because of-near recessionary conditions in the
US and Europe, there could be more it outsourcing work coming India's
way. That's because in a bid to cut costs, companies are not just
outsourcing but offshoring work to cheaper, but reliable, vendors.
And by all measures, India has the most of them. Therefore, absolute
spend on it continues to be stagnant, but India's share in it is
set to go up. In fact, while announcing Wipro's second quarter results
recently, the company's Chairman Azim Premji said as much. ''A challenging
business environment has made India-based offshore initiatives a
key priority for global corporations.''
A recent survey of global Chief Information
Officers in the US backs Premji's claim. According to the survey,
spending on global it services outsourced to India will increase
from 3 per cent to 6 per cent in 2003. That means even if the it
spend continues to stagnate, India's share could straightaway double.
''The increasing interest in outsourcing and increased awareness
of the Indian offshore model have been the key drivers of volume
growth,'' notes Nilambu Syam, it Analyst, Kotak Securities.
That the industry can already sense the coming
tide was obvious in the first flush of second quarter results announced
over the past fortnight. For Infosys, the q2 sales were up 15 per
cent quarter-on-quarter, but a significant 35 per cent year-on-year.
Similarly, while its net profits for the quarter was up 11 per cent,
on a year-on-year basis it grew 19 per cent. By comparison, Wipro's
revenues jumped 21 per cent, although the bottomline grew an unimpressive
2 per cent. (Satyam Computers and HCL Technologies had not yet declared
their quarterly results when BT went to press.)
What's important about the results is that
they hint at some sort of a price stabilisation-the first sign that
there's a let up in pricing pressure and that it spending may start
growing. In fact, Infosys reported an increase in offshore pricing
of 2 per cent and onsite pricing by 6 per cent q-on-q. Nasscom Vice
President Sunil Mehta says that based on the association's routinely
collected data, top-notch Indian it companies are high on the list
of global players and that these top companies have been routinely
bagging multi-year offshore contracts, like Wipro's Lattice contract,
which was valued at about $75 million. ''Earlier, the size of contracts
was smaller-$10-15 million, on an average-though this was distributed
among several it companies,'' points out Mehta.
The number of first-time vendor-seeking clients
visiting the country, Mehta further points out, is also increasing,
with two or three coming every week. Most of the large companies
have added 25-30 clients during the last three quarters. Wipro added
30 new customers, while Infosys added 18 new clients during the
quarter. These clients have not started giving business, but the
project ramp-up could start now. The results of second-rung companies
like Mastek, Visualsoft, and Mphasis clearly indicate that volume
growth is there. In anticipation of that not only are people being
pulled off the bench, but fresh recruitment is happening as well.
For instance, Infosys recruited 1,806 engineers last quarter-the
highest to date.
Offshoring may be a boon for Indian it services
companies, but risks remain. The biggest one is the slower than
expected global recovery, especially in the US and Europe, which
anyway is not a big customer for India. Another concern is on the
geo-political front (read: a US-Iraq war). If global political uncertainties
increase, it customers may go back to vendors closer home, since
reliability and time-to-market are still key factors in offshoring
decision. However, Morgan Stanley's survey reveals that 40 per cent
of respondents expect increased budgets in 2003, with only 22 per
cent planning on budget cuts and the remainder, same as this year's.
So Bush and Saddam willing, it's road to recovery
may be shorter than what most expect it to be.
Price Of Populism
Faced with elections next year, profligate states
reject austerity proposals.
|Talking heads: Consensus continues to
about the October 18 meeting of 22 chief ministers on fiscal correction
is not that it failed to make any progress. Rather, what's surprising
is that anybody should have expected any headway at all. For, the
problem is as deep-rooted as it is contentious. Sure, India's states
mirror the Centre's profligacy, but the biggest shove to the brink
came from the Central government itself when in 1996 it unilaterally
decided to implement the Fifth Pay Commission recommendations, jacking
up salaries of state and central government employees by 30 to 40
Therefore, now that the Central government
wants the states to freeze dearness allowance (paid twice a year),
reduce retirement age from 60 to 58, and swap high-cost debt with
cheaper loans, the states-they have Rs 1,04,557 crore of deficit
equal to 4.5 per cent of the GDP-are asking the Centre to talk a
walk. Part of the refusal has to do with the fact that some 10 states
will go to the polls next year. Impoverishing vote banks, then,
is not a terribly smart thing to do. With little chance of any bailout
package, and political interests elbowing out economic imperative,
the mess in our states can only get worse.