New Delhi: The top five software services providers operating in India added 24,047 people in the first quarter of this fiscal, compared with the 13,772 net additions in the previous fiscal, leading many experts to believe that the industry is set to record the fastest growth in three years. The turnaround in the pace of hiring at Tata Consultancy Services Ltd (TCS), Cognizant Technology Solutions Corp., Infosys Ltd, Wipro Ltd and HCL Technologies Ltd in the June quarter follows a year of tepid employee additions, the slowest pace since the offshore outsourcing boom started at the turn of the century.
Analysts attribute the reversal of fortunes for the sector to three reasons. First, companies are looking to spend more on outsourcing technology work. Second, Fortune 1000 companies are using data analytics platforms offered by information technology (IT) vendors to run their business better. This, in turn, is translating into more work for the outsourcing companies, for now. And third, companies are increasing their spending on digital technologies. The increased spending has led to more contracts valued at over $1 billion.
For instance, Mumbai-based TCS has won three mega deals since December, bringing in a combined $5.6 billion in revenue. Last week, Bengaluru-based Wipro won its largest contract valued at $1.6 billion.
“The early legs of any transformation are always challenging, and this we have seen in the last two years when all companies struggled for growth," an executive at Cognizant said on condition of anonymity. “For all the five companies, digital is now a fourth of total revenue. So, without getting into the debate of digital definition, the heartening thing is that quality of revenue is only improving."
Although all IT firms are moving away from a people-led model to a platform-based business approach, hiring by the largest IT firms continues to be a dominant indicator of their prospects. The five firms together employed 1.17 million at the end of the June quarter.
“Growth is back," a senior executive at TCS said on condition of anonymity. “Companies were always spending more on digital in the past. But now, what we are seeing is that if the traditional business can be done efficiently and if you have solution offerings like data analytics and AI (artificial intelligence) platforms, you will be able to differentiate from others."
“To us (TCS), the question of digital offsetting the loss in traditional is not relevant because there is enough and more work available and hiring is just one indicator," said the executive cited above.
The June quarter net additions of the five firms is the highest in at least two years. They added 26,565 people to their workforce in the three months ended 30 June 2016.
Although TCS does not provide a growth outlook, it is expected to cross 10% growth this fiscal. It managed an 8.6% dollar revenue growth to end last year with $19.09 billion in revenue. Ditto for Wipro, which ended last year with $8.06 billion in revenue. It expects to get at least $80 million or 1% growth this fiscal from the $1.6 billion contract.
“I’m not sure with this ‘little upswing’ we are seeing but the mood is definitely more bullish over the last couple of months," said Phil Fersht, chief executive officer of US-based HfS Research, an outsourcing research firm. His caution finds support from some industry executives.
“The biggest downside risk to this growth story is the uncertainty in the many of the first-of-its kind of projects," said the Cognizant executive cited before. “The work in areas like IP (intellectual property) platforms runs the risk of IP infringement cases. You are offering data analytics solutions when debate on data privacy is gaining traction. The promised benefits from automation will be tested. So, any incidental issue and this can blow up, making many clients hold back on spending in these areas."