The IT results season is more or less over and there are things both good and bad to be said for how it went. On the positive side, the results of India’s software services firms—worthies such as Tata Consultancy Services Ltd, Infosys Technologies Ltd, Wipro Ltd, Satyam Computer Services Ltd, and HCL Technologies Ltd—no longer command the kind of attention they once used to.
That’s because, as Nandan Nilekani, the co-chairman of Infosys Technologies, puts it (and only half in jest), IT is yesterday’s story. The performance of IT stocks in 2007, when they trailed the Bombay Stock Exchange’s benchmark Sensex bears (yes, bears) that out. There are so many other sectors analysts and investors can get excited about these days: retail, real estate, even power. Thanks to this, the hysteria once generated by the results of software services firms was no longer evident this January.
The bad news is that analysts, some of whom want to be writers, and writers, many of whom want to be analysts, have continued to use the same language they have always used to analyse the numbers of IT companies.
Terms such as onsite and offshore, fixed billing rates and utilization rate have been thrown around, carelessly sometimes. Over the past 10 days, everyone has been looking to make the big prediction about the future of the Indian software services industry based on the numbers. If they had not been able to—and it isn’t for want of trying—blame it on the simple fact that the future of these companies cannot be found in the numbers at all.
The Indian software industry has always been driven by points of inflection. The first came about in the run-up to 2000, when these companies showed they had the not inconsiderable manpower and project management skills (and the insignificant technical skills) to crunch reams of code to prevent systems from crashing because of the millennium bug.
The second came in the recession that followed the 9/11 terror attacks when these companies showed they had the ability to cut costs (for their clients) and improve process efficiencies. Some companies called this the global delivery model.
That was six years ago. Since then, everyone has been looking for a third point of inflection. There have been (and there will continue to be) many contenders. Some companies believe consulting will be the magic cure. Others think it will be systems integration, the process of clubbing hardware, software, and services into what these companies claim is an attractive lure for customers. A few others say the future lies in the domestic market (and there is no denying the fact that this market will grow). And still others are convinced that the future lies in platform-based services, where software services firms build assembly lines delivering services and customers just patch into these, paying as they go.
The problem is, no one knows for sure what the next point of inflection, the next big thing, will be. It could be any of the things mentioned above. It could be all of the things mentioned above. Or it could be something entirely different.
Given this, the software services companies will continue to make announcements about how they are looking for acquisitions to build their expertise in specific industries, investing in growing their consulting business, or looking at systems integration.
The inability of software companies and analysts to predict what the next big thing will be is precisely why IT stocks have under performed—not because of the rupee, and not because of the threat of a recession in the US (the industry thrived through the first one it saw earlier this decade). These do have a role to play, but it isn’t the starring one.
(What will the next inflection point for the Indian IT industry be? Write to us at firstname.lastname@example.org)