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IT firms to rebound in 2013, TCS may lead

The year 2013 could bring some cheer for Indian IT companies. IT budgets of companies could be up low-single digits so clients will increase offshoring to stretch the dollar, benefitting India's $100 billion tech industry, Bank of America Merrill Lynch says. Global investment bank JPMorgan also says that barring hard-to-estimate effects of certain events like the US fiscal cliff, FY14 will be a better year for the offshore IT industry than FY13.
Here's how 2013 is likely to unfold for Indian IT industry:
  1. Sentiments on outlook better: Sudin Apte, whose company Offshore Insights interviewed 270 companies, says sentiment on business outlook is better than same time last year. About 50 per cent of the companies surveyed said 2013 outlook was better as compared with 12 per cent expecting an improved outlook for 2012, same time last year, and 40-45 per cent companies expect low single digit increases in IT budgets.

  2. Transformation-oriented enterprise application & application development spend could benefit from pent up demand though plain vanilla application and IT infra deals may continue to be under pressure.

  3. Splitting of projects into smaller sizes and delays in decision making has led to cautious hiring on campus as well as of laterals.

  4. Manufacturing and retail may continue to show traction though banking, financial services and insurance verticals may be mixed. In terms of geography, U.S. and Asia Pacific could lead, while Europe will be slow.

  5. Tata Consultancy Services: India's biggest IT outsourcer is reasonably optimistic about budgets next year. Transformation is a key area of focus. The company continues to see strong momentum on IT infrastructure management services. Unlike Infosys, TCS does not cite sudden cuts in discretionary spend by banking clients either. TCS has not seen any significant irrational pricing behavior in the market. TCS hopes to achieve its aspiration of holding EBIT margins at the 27 per cent.

  6. Infosys: The company may not be able to meet its FY12 guidance. With lower revenues, the stiff margin target set for H2 appears to be at risk. Infosys is being more flexible in contract structuring, taking a more strategic view to pricing, and is participating more in large application maintenance and infrastructure management deals where they had focused less in the past. Medium term initiatives are to move up the value chain by growing consulting & products /platforms, with acquisitions a key part of the strategy. Employee compensation and sales and marketing are the two areas of priority spending.

  7. Cognizant: The company’s revenue is likely to growth at over 17 per cent year-on-year in the December quarter. In 2013, the 100 per cent goal of its recent 8K for management incentives suggests 16 per cent top-line growth in 2013. Cognizant is shifting towards more off-campus and lateral hiring.

  8. Wipro: IT Infrastructure management services are gaining traction. The deal pipeline remains strong and win rates have improved. Wipro says there's a market-wide trend towards breaking up large infrastructure outsourcing deals. Smaller contract sizes help clients to limit risks.

  9. HCL Technologies: Banking clients are seeking to reduce 2013 IT budgets. Spending on regulatory projects and projects with high returns on investment are on the rise. HCL Tech continues to benefit from vendor consolidation in the banking space.

  10. Mahindra Satyam: Manufacturing - nearly 35 per cent of revenue - continues to see a steady flow of new projects over the last six months. There has been an increase in the average time to close deals. The trend is across deal sizes and particularly acute in Europe. Some customers are responding by breaking up larger projects into smaller batches.

    (Based on Bank of America Merrill Lynch's 360 Degree India IT Services Tour)

Story first published on: December 17, 2012 08:34 (IST)

Tags: Infosys, TCS, HCL Tech, Wipro, Cognizant

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