Change of guard in IT biz; TCS is new bellwether: Experts

Q: Infosys has decided to hold back on any further quarterly guidance and they have cut full-year guidance to just 5%. Can this be taken as an indication that the situation will only get worse?

Apte: We have been stating that the IT market will grow only by 6-8% for the last six years. For the last five-to-six quarters, it has been clear that Infosys is not on the top of the band of the fastest growing companies in the industry. So, we were expecting Infosys to grow at 5-5.5%.

However, the over 1% shrink in revenues quarter-on-quarter (QoQ), and that over 7% drop in profitability comes as a surprise. I think there was a drop in revenues from financial services as well as Europe.

Another surprise is that quarterly prices have gone down by 3.7%. This means that on one side the company has initiated a discount and on other side, it has not managed to grow, which is surely a concern. Until now, Infosys protected its margin and compromised on growth.

Q: Partha, you clearly believe that this a change of guard in the IT sector? Is TCS the new IT bellwether?

Iyengar: Absolutely. The change of guard has been occurring for the past two-to-three quarters. The change is final and I would go as far as to say that we really should stop calling Infosys the bellwether of the IT industry as it does the IT industry a disservice. I believe that there are many company-specific issues regarding Infosys.

Q: The Infosys CFO that they are not trying to do anything to compromise the pricing, margins, not chasing volumes but what do you see in commentary because volume growth has stayed where it was, pricing pressure has really hurt them?

Apte: Pricing is another concern or pressure for every provider. Clients are in a tough situation, the budgets are very tight. So, clearly clients are not in a mood to pay the prices that they were paying a year ago or six months back.

We consistently see clients asking for discounts and as the competition flares up and some players willing to give discount compared to others, I think there is pressure on discounting which is clearly visible.