Natrajan: I would think it certainly is going to be a slightly difficult year for the first six months but the consensus expectation is, that the markets will turnaround over the next six-seven months. The India story is still very strong ,so I don’t see any reason why after, maybe a weak first and second quarter, we will not see at least 20% north growth in the entire year, and it will continue to grow over next foreseeable future. So I would not have any doubts about the medium-term capabilities of the IT sector to continue to grow very successfully.

Natrajan: Not really, because right now there are lots of fence sitters; people who are already outsourcing are looking at opportunities to increase the level of outsourcing particularly in the long-term contracts and BPO. So to that extent demand will still be strong even in the first half. The fence sitters are really the new outsourcers; people who are not sure how long, how wide or how deep the recession or the slowdown is going to be. But if things continue and with the export led growth doesn’t really happen, my expectation is that even the fence sitters will start taking those decisions.

So I would say that irrespective of whether there is a deepening of recession in October or whether there is a revival that we expect, one will still see outsourcing wallets being released. So I don’t see any reason, irrespective of what happens to the economy, why we should not be able to meet the kind of numbers that companies have forecast and, indeed, as industry association Nasscom is looking at 20-22% as the minimum growth this year and I am confident that it will happen irrespective of what happens.

Chainani: Our view is that the growth in the IT sector is not because of the overall economy growth in the US, but because of penetration of offshore services. So irrespective of whether the economy is growing at 0% or 2% or 4%, the penetration is going to drive Indian IT and I quite agree that it will be a back ended growth because in the first couple of months. When such setbacks are there, companies go back to the drawing board; they stop everything and then they replan. So the only conclusive answer is, use more of low-cost high quality Indian offshore vendors.

Chainani: This result season has lead to a kind of separation within the top tier IT firms and we have adjusted our top pick back to Infosys. So we cannot generalize what’s going on with TCS, a slower growth this quarter and a weak pricing environment. On the other hand, if one looks at Infosys they have guided for a strong 17% EPS growth; but what many people miss is that there is a one time impact of increasing the dividend payout ratio from 20% to 30%; and then the guidance is at 20%- in line with the topline growth guidance.

Natrajan: Actually that’s a very predictable pattern because the deepening of off shoring means that some of us are moving from what used to be contextual services like applications support or even BPO, to very core services - engineering services, infrastructure. I think the answer to your question is that any mid tier company or indeed even a small company which has a niche focus is clearly valuable to their customer and they are seen as, very proactive and capable and will continue to grow.

I don’t see any reason to doubt that the mid tier companies will continue to do well and indeed will enhance and, may be, even grow their market share. But if one is a me-too company and one is just trying to compete on price against the larger firms, then of course one never had any reason to exist. So I think one will see the good companies growing extremely well and some of the bad companies naturally falling by the way side.

Natrajan: My own estimate and talking to various companies including our own, is that attrition is down by 20-25% over last year which really means that the employee base is also a little mature and people are expecting wage hikes. So I think with a moderation of the wage increases, there will of course be hiring. I think all of us are expecting to hire as many, if not more than last year, but there will be more focus on utilisation, there will be cost pressure.

So people will be watchful but they will definitely be hiring - nobody needs to be worried about mass layoffs or anything like that and attrition will be low. So overall I expect a year of consolidation but a year when the industry will deliver-- especially the good companies.

Chainani: I think that in these troubled times, if one were to pick between midcaps and largecaps, one would look at largecaps against their ability to sustain these enduring times. But the midcaps have bounced in the last couple of days due to the softening of government stance on the Software Technology Park of India (STPI) extension.

But as Mr. Natrajan was saying there will be some companies which will do well; there will be differentiated companies. In our coverage there is Rolta, which we call the best of Infosys and L&T rolled into one, as well as NIIT, which has got very strong franchise of distribution as they evolve from IT education to general purpose talent development. I won’t generalize it again, but exceptions would be there. Clearly the STPI extension is a good thing if it happens.