It is difficult to predict which way US President-elect Donald Trump will move in terms of policy but his 'bark is worse than his bite' and it is unlikely that Trump will make those fundamental changes that everyone expects, said Vineet Nayyar, VC of Tech Mahindra.
IT sector remains an enabler and that is likely to be the last area impacted by the new administration, says Vineet Nayyar, VC of Tech Mahindra.
There are net concerns and US visa costs are likely to go up marginally in the near term, he said.
Speaking to CNBC-TV18 Nayyar said that a tight visa regime will result in an uptick for off-shore operations which can increase profits.
He said that it is difficult to predict which way US President-elect Donald Trump will move in terms of policy but his 'bark is worse than his bite' and it is unlikely that Trump will make those fundamental changes that everyone expects.
Below is the verbatim transcript of Vineet Nayyar’s interview to Anuj Singhal, Latha Venkatesh & Sonia Shenoy.
Anuj: Currency can be headwind or tailwind, right now it is acting as tailwind, but what is your sense of the overall business scenario because that hasn’t looked good for IT companies over the last couple of quarters?
A: That has been true, it has been kind of depressed, but some of the uncertainties are going away and people are recognising to get business moving anywhere, even if in the United States. IT becomes an enabler. I think that will be the last area which will be impacted by the new administration because those continue to be the overriding worries as we look at IT sector going forward because almost all IT companies their 50 percent of revenues come from the United States.
So, net-net we have concerns; we recognise that the visa cost may go up marginally, but I don’t think that we are overly worried about the uncertainty which may hit us as we go forward because we are in many ways enured from major intervention because we are on the periphery of almost every industrial endeavour. What they are going to do is go after, if at all, on the basic industrial endeavour.
Latha: There has been one positive spin coming around that perhaps because of Trump’s maybe excessive spending from the fisc the banks will be in better shape and because of other changes he is expected to engender. Do you see the banks, financial services & insurance (BFSI) being a sector that bottoms out and gives orders?
A: It is difficult to predict, let me say that first, which way Trump will move. Nobody has been able to predict it so far when it comes to policy. However, if I may use this word 'bite', I don't think he is going to make those fundamental changes as everybody expects because his main reason is to grow business and anything which impacts business is going to be a no-no for him.
Sonia: If we just comeback to that point you made about the US visa cost, on an average the cost of employees is what percentage of topline for companies like yours and if there is tighter US visa regime what kind of ballpark impact would that have on earnings?
A: I always look at things positively, so if there is tighter visa regime that means the offshore work will go up somewhat in relation to what it is at this point of time and that may in fact add to profitability. So, frankly, I think IT a) is very critical to the lifeblood of US economy b) it still represents a very tiny costs, so if you want to really move the engine then you will look at other things like imports, basic raw materials and stuff like that rather than tinker with something which is so marginal in the overall cost of a product.
Latha: What about the overall evolution of the sector itself towards that social, mobile, analytics and cloud computing (SMAC), the digitisation of a business. Will we be able to keep up or will that continue to chip at margins, chip at business, chip at revenue growth?
A: I think that is a far more fundamental change than a change of a political leader in possibly the world’s largest economy. I think that is really which is far more fundamental and that should be a cause of concern to the IT industry because on one hand automation will reduce, even the value of the output and on the other hand you will have a more expensive area to cover.
So, as I said last time to you guys also that we do not know what will come out in the wash but that there are challenges without a shadow of doubt.
Anuj: The other piece of the equation is what is happening in Europe because Brexit had an impact, now we have referendum from Italy as well what is a sense as far as that part of the business is concerned?
A: That doesn’t worry me at all, yes, Brexit is having issues; it may be that we may have to move from one country to another because of everyone trying to evolve their own manufacturing or productive units. However, I don’t see that as much of a challenge other than what may come out of movement of currencies.The Great Diwali Discount!
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