Bad macro in developed world good for Indian IT: HCL Tech

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Bad macro in developed world good for Indian IT: HCL Tech

In an interview to CNBC-TV18, Vineet Nayar, chief executive of HCL Technologies said that bad macro-economic condition in developed world is good for Indian IT industry.

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ See latest News about HCL Tech See previous management interviews See what other Experts & Brokerages are saying about HCL Tech HCL Tech BSE | NSE 29/05/12 Are Mutual Funds betting on HCL Tech?

Q: Given that you sense that there is a lot of churn within large deals in the market place and shift in market shares. Would HCL Tech want to be aggressively positioned towards garnering increasing market share and capitalise on that even if that means sacrificing some margins this year?

A: The answer is yes to your first part of the question and no to the second part of the question. It was very important; it's HCL anticipated this would happen and therefore it position itself aggressively. I had told you in July-August-September quarter of last year, we all must increase our sales headcount by 50%. This is because we saw this is a market share therefore we have to invest a lot more in defending our position in existing customers.

We have to invest a lot more and eating somebody else's lunch in existing customers and new customers. Therefore the sales and solution investment had to go up and that's the reason our margins went down. That was a good idea because our growth rates reflect that and the fact that our margin trajectories back to where we were reflect that. So that was a good strategy. Going forward we continued the same strategy.

I truly believe that if you lose the momentum of growth you lose mindshare both with employees and with customers and that derail your business model. So under no circumstances you should lose mindshare. The second is can that business we won at the cost of margin, I believe no.

There is a lot of investments which is required. Instead of releasing margins going forward we will take the margins and reinvest them into new growth markets. These would be business analytics, outsourcing in new way, machine to machine communication, the whole business process outsourcing engineering which we are doing.

We would redeploy that so-called increase margins which we could have released in our P&L and reinvest it back so that we continue to drive the momentum of growth. That in my mind is the most important thing for HCL in the short-term.

Q: So you are saying that equals stable margin from where you have reached plus higher market share growth - would that be a fair assessment?

A: I think the fair assessment would be that we would increase our margins in the coming quarter which is what we have promised. From there onwards stable margins and increase market share that is our goal.

Q: Let me talk about a couple of other irritants which have cropped up and this Visa issues which we have been talking to a lot of other companies about - is it a big irritant in your eyes?

A: I think it is not well understood and there is a lot of hype around it. There are two things which are very important. We must understand the job losses scenario in US and Europe is quite bad. Therefore people and government are rightly responding to that and ensuring that their regulations and rules which they had defined are adhere to properly so that people do not misuse you including the visa.

There is a lot of confusion or lack of clarity on what visa are - for example on H1 there is no lack of clarity therefore the rejection rates for most companies on H1 is less than 1%. The lack of clarity is what is specialized skills, which visa applies for what purpose. What can we do in that visa and there is an ambiguity on that which Nasscom and companies working with the US and Europe embassies to clarity.

Therefore, the rejection rates on those counts are higher not because they want to reject, they just want to make sure that the rules are applied clearly. The rules are not very clear and therefore the rejection rates are higher because of ambiguity.

As that ambiguity gets removed as we understand the rules as those counties want to implement and they understand what we really want to do and that ambiguity gets improved over the next one- two quarters. I believe the rejection rates will come down.

This is  because we are not in the probability business of applying visa and going for higher rejection rates. Rejection rates are because of the ambiguity. Therefore, I do not see that as a material structural change in the industry.

It is an irritant in the short term but it is not a material change which will change the competitiveness of the IT services export of India. This is because it is impacting IMB, Accenture everybody. There will be a clarity and this issue should be behind us in a couple of quarters from now.