Infosys, TCS results state the wrong in Indian IT sector

A decade and seven years ago an Indian man hailing from the Indian capital enthralled the technology departments of global corporations with a ‘tale of a tempest’ many times more amplified and puffed up than the abundant crop of hair he sported. The latter was a wig while the former was mere bad science fiction gift-wrapped by consultants as a 600 billion dollar hair-raiser.

However, Dewang Mehta, the chief lobbyist for India's fledgling software services industry, successfully managed both with matchless self-confidence, convincing businesses that at the stroke of midnight of the novel millennium, their computer systems would crash as old programs measured years in ‘2’ digits instead of ‘4’. He persuaded them that the solution was to let a horde of techies from Hyderabad and Bangalore go through each line of code and fix the ‘Y2K’ bug. Birth and death of India’s IT Sector:

That was the birth of our nation's magnificently successful software services

industry, which had its funeral on Friday after a short battle with novel digital

technologies. At the time when its funeral prayers were being offered, the

business was worth a 110 billion dollar in annual export revenue.

It was time to turn off the Ventilator:

The very first inkling that the end was near came on Thursday when TCS -

Tata Consultancy Services, the largest Indian software vendor by market

value, made an announcement of a virtual stalling of its business in the Q2 or

September quarter from the previous 3 months. And it was time to turn the

ventilator off when Infosys slashed its full-year revenue guidance for the

second time in 3 months.

A coroner’s Inquiry:

A coroner's inquiry uncovered three signs of decay, theD first of which

showed how Indian companies' cheap-talent-fuelled growth ran out of breath.

In the 4 quarters ahead of the collapse of Lehman Brothers, Infosys witnessed

a revenue increase of an average of 29% in constant-currency terms. Back

then, Accenture's growth was just half as high. However, there isn’t anything

exceptional about Indian companies' expansion anymore. All that the

investors have heard from managements this year is a depressing

commentary on how challenging it has become to get clients to open their

wallets. And the hilarious part is that nowadays companies only make it to the

newspapers for dodgy business practices, senior-level exits and regulatory

slaps on the wrist.

Old is not always Gold:

A slowdown alone would not have handcuffed the Indian industry if it had

been able to embrace social, mobile, analytics and cloud (smac) based

technologies. However, the vendors were too busy defending their legacy

business and thus failed to make a mark in the novel digital world.

A reliable data showed that the dominant trio of TCS, Infosys and Wipro

between them had 1.5 times more workers involved in digital stuff last year

than Accenture. However, the revenue they harvested was 40% less than what

the latter chalked up from novel technologies. That makes the typical digital-

tech employee of an Indian vendor 25% as efficient as his counterpart at the

global consultant. The clock is set back on Indian companies due to this gap

while it has taken years to narrow the productivity differential.

And the Mystery Continues…

Perhaps it's just banking clients and their inability to pay as they did once

upon a time. Or maybe it's a combination of feeble global growth,

protectionism, Brexit and Donald Trump's fickle stance on US visas for the

Indian technology workers. Hoping that ‘tempest’ is temporary, investors

continue to pay a hefty premium for future growth. They may be fortunate for

a while. However, a dead-cat bounce from delayed orders coming through

would barely count as proof of life.

Conclusion:

The millennium fright which got Indian software a foot in the door at global

corporations. However, now the shoe is on the other foot. Artificial

intelligence and robotics are putting the vendors' labour-intensive business at

risk. Even if the concern is as amplified as Y2K, with many growth candidates

in the Indian start-up world, atleast for some investors it may be time to back

novel horses rather than whip the dead ones.

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Article Written by Salman Hashmi