R Chandrashekhar, Chairman of software industry body NASSCOM, said on Friday that IT growth will remain muted in the fourth quarter and the sector will start bottoming out by the first quarter of the next fiscal.
Bellweathers TCS and Infosys both released their third quarter earnings over the past 24 hours. Infosys delivered mixed set of earnings for October-December quarter, with profit rising 2.8 percent sequentially to Rs 3,708 crore but lowered its full year dollar as well as rupee revenue guidance. Earlier, TCS said its third quarter (October-December) profit increased 2.9 percent sequentially to Rs 6,778 crore, with revenue and margin in line.
Chandrashekar said the muted performance could be put down to short-term factors such as uncertainty over the US Presidential election result, Brexit, and the collective performance of major global economies,
He said the fundamentals of the industry remain strong and the situation will get better after the fourth quarter. He said positive signs of an upturn were already visible in the Q3 earnings of Infosys and TCS, with significant growth in revenues from the digital space.
Below is the verbatim transcript of R Chandrashekhar’s interview to Prashant Nair & Ekta Batra.
Prashant: Growth for both Infosys and Tata Consultancy Services (TCS) has been flat. I am talking about absolute performance, not against what the market or analysts were expecting. What is your impression on looking at the growth rates, both volume and dollar growth that we have seen.
A: As a policy we do not comment on an individual company’s performance, we are seeing reinforces and underlines we had said when we came up with the revised guidance in November, last year. We had said three things. One, the muted performance in the sector was on account of a number of short-term factors like Brexit, uncertainty over the US election outcome and then lowering of the projected economic growth rates in the gross domestic product (GDP) and some of the key geographies like in the US, UK and Europe and so on.
Second, we had also said that we did not see any problems on the fundamentals; the fundamentals for the industry were strong and remained so and, any softness was also on account of more of delayed decision making and other short-term factors - that is also brought out here.
Third, we had also said that we expect this to bottom out over the next quarter or a quarter-and-a-half which means Q4 of the current year will also see a muted performance, but thereafter, as the uncertainties settle down, we expect that things will improve. However, those signs are visible in the results that have been declared.
Prashant: Will you put it that way in terms of saying that you will see an upswing or you think the better way to contextualise is to say that maybe we have seen the worst? How would you put it?
A: That is more a matter of semantics and which way one wants to present it, but the main essence of the whole point is that we have seen the bottoming out of the negative impact of all the short-term factors that I had talked about and this bottoming out will happen starting from Q1 of the next fiscal - and that whether you say is the end of the bottom or it is an upswing, is really a matter of how you describe it, but the essence of what is happening is that.
Ekta: On the optimistic side, most business confidence surveys from the US, in fact are at multi-year highs. Do you think that that will translate into a much better next year?
A: No, I do not think it is a tenuous link because ultimately when the economy is growing, when businesses are healthy and on the rise, then their willingness to invest in technology to make themselves more competitive and more profitable would be higher although one might argue that it is in difficult times that you need to think of these. But the reality is that when companies are doing well, they do think of investing for the future and in today’s world, investing in technology is one essential element of any growth strategy for a company.
The other positive sign in all of this is if you look at some of the numbers of the companies and the results that they have just announced, there is a significant growth in the revenues from digital, which means that the transition is being successfully made by companies to move into the digital space and to actually tap into the market opportunity that is coming up because of all these developments. So these are some of the positive indications which are the basis for the confidence that the growth that has been projected by all the analysts will translate into growth for the industry in India as well.