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Nasscom may lower IT sector’s growth forecast

BENGALURU: India’s software companies such as Tata Consultancy Services (TCS), Infosys and Wipro may wrap up the year ending March with lower earnings than estimated by industry body Nasscom amid choppy demand, pricing pressure and competition from global rivals.

“Nasscom is currently compiling its growth estimates of Indian IT in the fiscal year 2014-15. With changing global macroeconomic developments and cross-currency movement, the guidance of the industry and companies have had some impact,” said a spokeswoman.

“Given the relative diversity of performance across the industry during the first three quarters of the year, Nasscom concedes that the growth of IT will not be at the upper band of its earlier guidance of 13-15%.”

The industry lobby group may narrow its earlier revenue growth forecast to 1214% for the $118 billion information and business process management industry in 2014-15 when it meets in the coming weeks, according to two executives familiar with the development.

“The revision will not be significantly different, but yes, it is certain that the way we see, it will be at the lower end,” one of the executives said, adding that it could be pegged at 12 to 14%, although the number is still ‘being discussed.’

Slowing growth in emerging economies, including Russia and Brazil, coupled with easing demand for enterprise software made technology research firm Gartner cut its global IT services growth forecast to 2.5% for calendar year 2015 from 4.1%. The firm cut its worldwide IT spending outlook to $3.8 trillion in 2015 as against an earlier expectation of $3.9 trillion.

The last time the software industry met the lower band of Nasscom’s guidance was in 2011-12, when growth was 11% against an estimate of 11%-14%.

The country’s 10 largest companies, which account for a little over 40% of exports, were expected to record $88.4 billion from software exports. The remaining 60% is accounted by the domestic units of foreign companies, including JP Morgan and Citigroup. Three factors have curbed growth at the largest IT companies.

First, many clients have held back on inking deals with IT vendors on account of an uncertain economic recovery. In the first quarter of this financial year, almost every second contract to be awarded got pushed back, according to London-based IT research firm Ovum and reported by ET on August 19.

Second, the commoditised back-end business is facing pricing pressure as companies vie to win deals.

“The pricing pressure, yes we have seen that,” Infosys CEO Vishal Sikka told reporters when the company reported a tepid 0.8% revenue growth in the third quarter.

“We are seeing absolute pricing pressure in terms of deal value,” Wipro CEO TK Kurien told ET in an interview after the company posted feeble growth of 1.3% in the third quarter. “As commoditisation happens, that’s the first cycle you see kick in.”

Finally, the limitations of domestic IT firms in building up capabilities in the social, mobile, analytics and digital space technologies comes to the fore as they compete against global outsourcing firms, including Accenture and IBM.

“India IT services market is navigating through its mature stage and external forces such as consumerisation, cloud, digital and startups are pressuring the large players’ performance,” said Bozhidar Hristov, analyst at US-based research firm TBRI. “The IT services market is transitioning from body to mind-type levers.”

TCS, the country’s largest software exporter, reported a flat top line growth in the traditionally weak third quarter.The Mumbai-based company posted 5.5% and 6.4% sequential revenue growth in the first two quarters while, comparatively, Bengaluru-based Infosys grew at 2% and 3.1%.

“In terms of TCS and Infosys’ end of FY performance, we believe TCS will deliver low-teen double-digit growth. Infosys, however, will barely scratch the bottom end of its fiscal year 2015 revenue guidance of 7%-9%,” said Hristov.

Wipro, which inched up 1.2% in the first three months of the financial year and 1.8% in July-September, is expected to grow between 7-8% for the year, after its guidance of 1.13.1% for the fourth quarter.

Source: Times Of India

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