BackVineet Nayar | The world is a better place than it was a year ago
Vineet Nayar | The world is a better place than it was a year ago
PremiumPositive outlook: Nayar says IT budget may be flat or negative but the churn within is very large. Mint
After Infosys Ltd’s quarterly earnings and revenue projections for this fiscal year disappointed investors last week, its smaller rival HCL Technologies Ltd’s positive comments and earnings have come as a breather.
In an interview, Vineet Nayar, vice-chairman and chief executive, spoke about the business environment and the company’s strategy. Edited excerpts:
Infosys talked about delays in decision-making and reduction in spending by clients. What’s your outlook?
I believe that the world is divided into multiple underlying currents. In the US, companies had 20% higher profitability than they had pre-recession. At the same time, they are spending less than 1% on capex predominantly because people are more uncertain, prudent, and want higher return on their investment. And that is one thing which is driving a negative or a flattish growth in IT (information technology) spending. Second, the financial and the pharma industry is going through a radical transformation; they expect lower margins than ever before. Therefore, their IT spend, they are dramatically cutting down.
If you put these three currents together, what is happening is that IT budget may be flat or negative but the churn within is very large. Therefore, you will see different commentary coming from different people. Depends on whether you are on the winning side of the churn or on the losing side of the churn.
In Europe, the companies are at the lowest profit or competitive curve and are waking up to first time outsourcing. And these markets are open to those people who had forward invested in continental Europe, as we had, and not to those who had come in late.
So, overall, the way you look at IT spend will be huge amount of turbulence, churn, negative to flattish, but there is an opportunity for smart companies to grow while some of the slower companies may not be able to grow.
What are the broad trends which will define the IT market over the next 6-12 months?
My answer is based on what I see. I don’t see any slowness in decision-making. I see increase of speed in decision-making, predominantly because we are seeing a huge amount of urgency to execute the transformation which I am talking about. The very fact that $2.5 billion worth of decision-making got done in the last six months, and if you take the win ratio, which means we would have lost a lot also, indicates the fact that decisions are getting done. Secondly, budgets are not getting postponed, they are just getting churned around. So if you are on the wrong side of the budget which is not relevant anymore, then you are seeing a budget cut-down. If you look at the whole environment, from one service line or one segment, you reach all kinds of conclusions. The world is a better place than it was a year ago. CEOs are more confident than they were a year ago but they are smarter and astute. They are churning and are asking a lot more questions than they were earlier. Earlier, you could do a deal on the golf-course, now you have to show value.
It is the first time that Europe revenues have exceeded those of the US. Is the US economy again in serious trouble?
I don’t know what serious trouble is. They have given us $1.1 billion (in the past six months) against $1.4 billion of Europe. That’s not trouble, that’s party time. Turbulence is an opportunity and a threat depending on who you are talking to. CEOs are not pressing (the) panic attack button.
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