IT spend across markets rising; no big wage hike seen: TCS

The coming financial year (2013-14) could be a much better one for the IT industry in general, with growth rate likely in the range of 13-14 percent, said N Chandrasekaran, managing director and CEO, Tata Consultancy Services (TCS).

In an interview to CNBC-TV18, he said customers from many markets were increasing IT investments. However, he does not expect any uptick in billing rates, though there may not be any downward pressure either. Chandrasekaran said there were no client-specific issues in any of TCS's portfolios and did not foresee any volatility in revenues across quarters in FY14. He said there was enough room to increase productivity and wage hikes could be modest in FY14. TCS shares have risen nearly 25 percent over the last three months, after strong third quarter numbers from IT majors boosted sentiment for the sector in general. Among peers, Infosys and HCL shares rose 23 percent each and Wipro rose 11 percent. Below is the edited transcript of the interview on CNBC-TV18 Q: What is the level of demand on the ground?
A: Over the past few weeks, the business environment has turned positive with revival of momentum in the IT sector and we expect FY14 to be definitely better than FY13. There is increased investment in IT across industry and markets. In mobile-device technologies and cloud, what was an early sign of interest has now begun to gather momentum. Investment in pilot projects for big data has also started to pick up. Q: Would you concede that the intense pressure on prices is going to be a challenge this year?
A: From our point of view, Pricing remains stable. Though the downward pressure is not significant, at the same time there is no pick-up in pricing which should have normally occurred when demand rises.. Q: What kind of earnings do you expect to post when you say  FY14 will be better than FY13? Compared to the 10.5-percent growth registered in 2013, NASSCOM announced a guidance of 12-14 percent. Is IT sector growth likely to be in the higher end of that band?
A: I would tend to think so. Last year, NASSCOM announced 11-14 percent and the IT sector recorded growth slightly below 11 percent. This year it has announced a growth of 12-14 percent. Though a clearer picture regarding the achievement of this rate of growth will emerge at the end of Q1, I think that the rate of growth will definitely not be at the lower end of the band but definitely at least at midpoint or close to the upper end. Q: Where do you see maximum traction from? What do you think has changed in volume environment?
A: There are a few factors at work. First, efficiency remains to be one of the key criteria. Companies around the globe are looking at optimizing IT infrastructure in terms of either application portfolios or rationalising the ERP footprint on a shared services model. This is one area where a number of deals are being inked.  Deals of a fairly good size are also being signed in Europe in addition to the US market.
Second, discretionary spends are definitely being implemented in the digital space- in retail, in consumer goods, in the BFSI (banking, financial services and insurance) sector and in manufacturing primarily around the supply chain. So these are the kind of sectors that are attracting funding. I feel it is mix of both. On top of that, this fiscal's exit rate for companies is likely to be better than the exit rate of FY12. So if you put both together FY14 should be a better year. Q: Is there more direction in how the year is shaping up and do you think it is going to be a clean trend in terms of demand and volume growth?
A: There are couple of data points that can be used to answer this question. Customers  across the board have more clarity regarding their agenda and plans. There has been no sector-specific negative news in the past six months, no slowdown in what has been committed and no problems with regard to closures. I do not think there is going to be any volatility between quarters with standard growth and performance in Q1 and Q2 being better than Q3 and Q4. Q: Will this year be positive for all participants in the sector but in different measures?
A: I can’t offer a holistic view but I think it should be a better year for the industry as a whole. Q: How strong do you expect the rebound to be this year?
A: I definitely see a lot of clarity and optimism at all levels. But I think it is better to stick to expecting that FY14 will be better than FY13. The Q1 earnings will offer a clear indication of how the year will look like. Q: Since there is a perceptible change in sentiment in the sector this year, what will be the status of the supply side? Do you think wage hikes therefore will need to be stronger?
A: Wage hikes may not be very strong because recruitment is not very high and we continue to attract a lot of talent. Q: Are you confident about growth in core volume ?
A: I think the year is going to be normal with decent growth in volumes and no volatility between the first and second half of the year.