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Dec 31, 2012, 11.57 AM IST
The global economic downturn weighed on the Indian IT industry in 2012, a year, which saw old leaders slump, even as smaller rivals thrived.
The global economic downturn weighed on the Indian IT industry in 2012, a year, which saw old leaders slump, even as several smaller rivals thrived.
Tata Consultancy Services cemented its position as the top software services provider. It has maintained that it will grow faster than the 11-14 percent growth forecast by industry body NASSCOM for FY13.
Meanwhile, Infosys , once the benchmark, stopped issuing quarterly guidance this year and only expects to grow around 5 percent. Even this, analysts say, is going to be a tough ask in the current scenario. Many including Bank of America Merrill Lynch expect the Bangalore-based company is likely to miss its guidance.
Infosys' local rival Wipro too has struggled to keep pace in the changed economic environment, where customers are now taking longer than usual in finalising IT budgets and even cutting discretionary spends.
"We expect Infosys to cut their organic FY13 US dollar revenue growth guidance to 4 percent plus (from 5 percent plus) as the impact of accentuated seasonality may result in slower ramp up of deals, especially in banking, financial services and insurance (BFSI). We expect TCS to deliver sector-leading US dollar revenue growth (3% quarter-on-quarter) followed by HCL Tech (2.8% qoq) in organic terms," Goldman Sachs analysts Rishi Jhunjhunwala and Girish Ramkumar said in a recent report.
Wipro, which like Infosys has gone through a management rejig in the last couple of years, is also expected to underperform the broader industry, with just 2 percent sequential US dollar revenue growth in Oct-Dec (it has guided for 1.2-3.2 percent growth) and a weak 1 percent volume growth, according to the Goldman Sachs analysts.
Some analysts, however, have a contrarian view and believe Wipro, could in fact turn out to be the dark horse and stage a recovery next year.
"Wipro is likely to benefit significantly from the surge in IMS deals expected over FY13-FY14, strong growth in Energy & Utilities, and the BFSI's return to stability," says Priya Sunder of Avendus Securities.
While Infosys and Wipro struggled over the last year, smaller outsourcers like Hexaware Technologies saw strong growth.
Atul Nishar, Hexaware's chairman, recently said he was "reasonably" confident of outperforming the wider industry in 2013. This optimism came even as it was forced to cut its fourth quarter (Oct-Dec) guidance to USD 92 million from USD 94.7-96.5 million, due to changes to a project plan for a customer and impact on account of hurricane Sandy, which devastated the US east coast.
TCS, Infosys and Wipro, all have underperformed many of its peers over the last one year. Infosys and Wipro are down 17 percent and 3 percent, weighed down by their slow growth and near-term uncertainties. While TCS has gained 8 percent, many others like HCL Tech, Tech Mahindra and MindTree are up 60-75 percent.
How should you play the IT sector in 2013?
Both TCS and HCL Tech expect better demand and a gradual pick up in discretionary spending in 2013. Infosys, though, has maintained the overall environment is unlikely to improve soon.
Sunder of Avendus says investors should "add" Wipro and TCS shares. She downgraded Infosys (weak fundamentals) and HCL Tech (rich valuations) to "hold".
Goldman Sachs has a "buy" rating on HCL Tech, and "sell" on Wipro. It is "neutral" on Infosys, TCS and MphasiS.
Among other stocks, Hexaware may have had a strong earnings growth in 2012, it may not do so next year, warn analysts.
"Outside the new deals announced in Q2 and Q3 CY12, which will contribute 8% incremental growth in CY13, our concerns are more about the ability to generate growth from existing clients, rather than its ability to win new deals. We now expect Hexaware's CY13 growth to be in low double digits at best," Soumitra Chatterjee and Nitin Padmanabhan of Portuguese investment bank Espirito Santo said, urging investors to "sell" the stock.
Tags: Information Technology, software services, Infosys, Tata Consultancy Services, TCS, Wipro, Hexaware, MindTree, MphasiS, HCL Tech, 2012, growth, outlook, guidance, 2013
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