Cognizant Technology Solutions Corp. reported a strong 5.4% growth in revenue in the September quarter. But the company’s better-than-expected earnings don’t necessarily bode well for other Indian information technology companies.
Cognizant said it expects revenue to grow by only 2.6% in the December quarter, as it is a seasonally weak three months with many holidays. Besides, its interaction with North American clients recently suggested there won’t be any budget-flush this year. In some years, client spending picks up in the December quarter as they attempt to fully utilize annual budgets. But, this won’t be happening this year. Besides, the company said that hurricane Sandy will have a marginal impact of less than 0.5% on growth.
All put together, growth in the December quarter is expected to be soft. This is bad news for investors in Infosys Ltd, which is expecting a pick-up in growth in December and March quarters. To meet its annual growth target of 5%, the asking growth rate for the December and March quarters stands at 3.7%. In the seasonally strong September quarter, it had grown by merely 1.7% after adjusting for an exceptional write-off in the June quarter.
But growth is expected to be steady in 2013. The company said at the recent Cognizant North American Community event, which was attended by 400 clients, it emerged that most client budgets are expected to be flat in 2013. This is not very different from the earlier years, where budgets have been more or less flat, but with a shift towards offshoring. Besides, clients are still looking to deploy savings from offshoring into investments in new technologies related to social, mobile, analytics and cloud technologies.
While all this sounds good, it must be noted that in such an environment, Cognizant has managed to grow by around 21% on a year-on-year basis in the nine-month period till September. In the same period, other large Indian peers such as Tata Consultancy Services Ltd (TCS), Infosys, Wipro Ltd and HCL Technologies Ltd have grown revenue by only 10.4%. If, as the company says, the environment in 2013 is expected to be more or less the same as 2012, growth rates may remain anaemic. And investors will continue to prefer Cognizant and TCS, which have benefited the most from market-share gains.