Infy scare won't see us revise 11-14% guidance yet: NASSCOM

The shocker from Infosys which has given out with a revenue guidance of 8%-10%, is much lower than NASSCOM's guidance for the IT sector as a whole. The IT biggie’s all-round guidance whether its revenues, profits and rupee-dollar terms are all in single-digits.

This is something unheard of from the IT bellwether for a long time. As investors worry about the single-digit growth, the market most likely won't take it lying down, given that the stock is trading at double-digit valuations.

NASSCOM president Som Mittal tells CNBC-TV18 in an exclusive that he finds no reasons to revise NASSCOM’s guidance of 11%-14% just yet. The industry body had, at the start of the year, when it had given its guidance, factored in the uncertainty plaguing the IT industry, especially the cut in IT budgets.

He says the industry is seeing a slow recovery taking place in the US. While the high rate of rejection of visas is an issue, Mittal says the US government has acknowledged these concerns and is working on reducing the rate of rejection.

He is bullish on midcap IT firms faring better this fiscal.

Below is an edited transcript of his interview. Watch the accompanying video for more.

Q: How worried are you about the commentary we heard from the Infosys management and what they have guided? The 8-10% is lower than NASSCOM's guidance. Do you believe that this is a sign of things to come?

A: When we had given our guidance earlier in the year, it was quite well researched and we had predicted that there will be uncertainty during the year. We had also factored in the fact that many analysts had talked about IT budgets going down. I don’t think very much has changed from the time we gave the forecast and now.

If at all, I would say that we have started seeing a recovery in the US. The job situation there is getting better. While that uncertainty remains there are still new drivers where people are transforming their business models, they are adapting to new mobile and cloud computing areas. We still think that the 11%-14% guidance that we gave should remain.

Q: You were talking about the recovery that we are seeing in the US economy and the fact that it is probably going to reflect in the way that IT companies perform. But the analyst community isn’t completely convinced about that argument. They feel that if at all it’s going to reflect in the IT recovery only at the end of 2012. What’s your sense?

A: It would be towards the second half that we would see growth rates really coming back, but the fact that the recovery has started happening is a very positive sign. So, it indicates that what we had predicted would be there. The areas that I was mentioning about – how companies are wanting to get into emerging markets because of which they need new products and services, the fact that they are moving cloud are the new drivers for our businesses.

We had mentioned when we had given our guidance that in this year we would see probably differentiated performance across companies as companies look at new strategies and so on.

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Q: So, would you say that you believe Infosys is the aberration as opposed to being the norm?

A: We don’t speak about individual companies, but from many of the statements that we have heard from the management, they have mentioned some very specific issues that could be company specific.

Q: Where do things currently stand on those high visa cost?

A: The visa fee went up two years ago and I think that’s pretty much factored into the business today. The real concern for us is the high rejection rate of visas because that adds to the uncertainty of our businesses. So this issue is top priority for us.

It’s very high priority for the government as well. In every trade discussion, this topic keeps cropping up. The US government has realised that there is a problem and we hope that in the coming months, they will address it by providing better guidance on how the rejection rate could actually come down.

As I speak about the coming year, the sector continues to be positive on hiring plans and  the number of job-offers that are being made in campuses were quite good.

Q: You talked about how Nasscom has differentiated growth for the sector. A quick word about midcap and small-cap companies as these may be the ones that bear the brunt.

A: They did bear the brunt in the past and in 2008, their recovery was slower. But they have, in the last two-three years, changed their strategies and have became more focused. Our belief is that midcap companies seem to be back on track and would probably post higher growth this year.