Mumbai: The Indian information technology (IT) industry should be able to put the struggles of 2009 behind and look forward to a much better 2010, forecasts N. Chandrasekaran, chief executive officer and managing director of Tata Consultancy Services Ltd (TCS). Speaking to CNBC-TV18, he says IT budgets are opening up and increasing in size, and that bodes well for the sector’s growth over the coming year. This will also mean more recruitments and better salaries, he says. Edited excerpts:
You had a couple of very good quarters that surprised the markets and analysts. Is 2010 opening on a positive note?
After having a tough year in 2009, I think 2010 is going to be good for the industry overall.
Should the market expect revenue surprises from TCS?
I cannot comment on the immediate quarter, but, overall, the market conditions are far better today than at the same time last year.
What has changed? Are you seeing IT budgets being firmed up?
Last December, at the same time, there was absolutely a standstill in terms of IT budgets. Many companies could not finalize their plan for next fiscal and there were management changes happening in many companies across sectors. The financial services sector, which is the largest spender, was going through the toughest time.
Improving environment: TCS chief executive and managing director N. Chandrasekaran says the financial services sector, which is the largest IT spender, has improved significantly. Abhijit Bhatlekar / Mint
All of that has changed. Currently, the spending in the financial services sector has significantly improved and we have also seen revival in many other sectors. So given that the customers are looking at plans for 2010 and they are finalizing their budgets, we have much better visibility. There isn’t necessarily a spend increase everywhere, but there is clear visibility about what is going to be coming from different customers.
Does this better visibility you speak about work across sectors. And does it include a couple of problematic verticals that were weighing down growth?
Still, sectors like manufacturing and telecom are not out of the woods. Those sectors have still not revived fully but the decline in those sectors has stopped. I believe that if not in January then during the course of the year, these sectors will turn positive and deliver growth.
Does the banks, financial services and insurance (BFSI) segment continue to be the leader in terms of visibility and business traction?
Yes, BFSI is a very important sector from the IT spend point of view, both due to mergers and acquisitions and also due to cost improvement initiatives and growth opportunities. There are opportunities in the pharma and healthcare sectors, opportunities in the utility sector, as well as retail and logistics.
What do you expect from Citi Global Services in 2010?
I would just say that the E-serve unit is on track and they have been performing well for the last few quarters.
What about the large deal landscape? Are you seeing any better visibility with the opening up of significantly large $100 million-plus kind of deals?
I think some of those deals will happen. But it’s going to be sporadic; you cannot say those kind of deals are going to happen in every sector. Many of the deals in the efficiency space that is running the business space definitely are going to be coming to fruition. Whereas any large deal in the discretionary spend will be under a lot of security and those deals will be hard to come by.
Do you expect a significant improvement in pricing in 2010 or for the next three-four quarters?
Fundamentally, it’s going to be volume driven growth for the next year. However, the pricing is quite stable now. As the volumes pick up, demands will increase, which will slowly result in gaining pricing power. But that will probably be a few quarters away.
You became quite cautious in terms of recruitment. Are you now going to be more aggressive on that front, and perhaps even build bench strength?
We are going through the plans, but at high level, our recruitment targets are going to be higher this year than last year. Definitely, we will be going to the campuses. The numbers will be more than last year and we will be creating some sort of bench.
Improvement in the sector is inevitably followed by the firming up of wages. Do you see salary costs also moving up after a flat year?
Yes, definitely. We did not have a wage increase last year, so there will be a certain amount of wage increase. But it will be moderate. We are going through the details at this point in time, and we will be finalizing it shortly. But there will be moderate wage increase.