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Beating the headwinds

Beating the headwinds
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First Published: Wed, Jul 20 2011. 11 34 PM IST
Updated: Wed, Jul 20 2011. 11 34 PM IST
The current IT results season has thrown up quite a mixed bag, with the financial performance of top companies ranging from exceptional to mediocre, and in one case even poor. Tata Consultancy Services Ltd, the largest company in the sector, grew revenues by an impressive 7.5% compared with the preceding quarter. Infosys Ltd managed to grow revenues to 4.3%, while Wipro Ltd’s?revenues?were flat.
Even in terms of year-on-year growth, the difference is stark. Even so, cumulative revenues of the top three firms have grown by 26% in the first quarter of the current financial year. This marks a good beginning to achieving industry body Nasscom’s growth target of 16-18% this year.
The disparity in growth rates among the top three firms in the sector can be misleading. Both Wipro and Infosys are in the midst of some form of organizational restructuring. The former has been rather candid that its restructuring exercise will affect growth rates for most of this calendar year. The performance of the two companies, therefore, doesn’t reflect the ground realities in the sector.
This is corroborated by the fact that another large outsourcing company, Accenture Plc, also reported strong quarterly results late last month. Its new order bookings in the last quarter were the highest in 11 quarters. Some small- and mid-size companies have also reported healthy growth rates of around 6-10% in international revenues. And some firms have recently announced large order wins this month.
All of this suggests that business is being conducted at a fairly brisk pace. Even though most IT clients are concerned about the deterioration in the global macroeconomic situation, they are continuing to invest in technology. Some of the factors that are driving growth at this point include clients’ need to integrate global acquisitions, manage increased levels of globalization and to cater to increased regulatory requirements.
This is not to say that there has been impact whatsoever because of the changes in the macroeconomic environment. While demand has been strong and cost pressures have been rising, customers seem to be increasingly reluctant to raise prices. The industry may need to learn to live with lower margins.
nother lesson for the industry in the past quarter was that it needs to be more agile in adapting to the changes in various marketplaces. Different industries and different regions are in a state of flux, and companies with strong domain knowledge and customer relationships will be best placed to take advantage of this situation.
And as the disparity in growth rates among India’s top companies shows, not all companies may benefit from the strong demand currently for IT services.
What should Indian IT firms do to prepare for a difficult global environment? Tell us at views@livemint.com
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First Published: Wed, Jul 20 2011. 11 34 PM IST