Why TCS and HCL Tech are better IT bets than Infosys and Wipro
Over the past few weeks, the big four among India’s info-tech firms—Tata Consultancy Services, Infosys, Wipro and HCL Technologies—have announced their financial results for the March quarter. The numbers make it clear that there is a change of guard in this leading pack of industry. Infosys is no longer the benchmark for growth in the struggling sector.
Its position has been usurped by TCS and HCL Technologies, while Wipro continues to be an underperformer. Is this divergent growth likely to be the norm in the coming years or is it the result of a virtually stagnant global economy? Are we reading too much into the temporary problems faced by the two IT behemoths? Let us look beyond the numbers to consider the strategies that are shaping these businesses, and what it implies for investors.
Infosys & Wipro: Missing a few tricks
The Bangalore-based IT majors, Infosys and Wipro, have continued to disappoint with their latest financial declarations. Any recovery suggested by Infosys’ market-beating December quarter numbers was quickly razed by the poor March quarter figures. It was widely believed that Wipro would report the lowest revenue growth among the top IT firms during this period, but the dubious distinction went to Infosys. Despite aggressive positioning, Infosys’s revenue (in dollars) grew at a tepid 1.4% sequentially, much below the 2-3% that analysts were estimating.
More worrisome was the management’s conservative guidance of 6-10% revenue growth for the current fiscal year. It came as a dampener as it fell short of the wider industry growth outlook of 12-14% amid an improvement in the demand outlook. Wipro fared only marginally better as revenues saw a mild 0.5% sequential jump in the March quarter, lower than the Street estimate of around 2%. The problems for the duo seem to be internal, rather than external. Both are undergoing a transformation involving internal restructuring and realignment of strategy.
Infosys is moving towards a non-linear growth model, which is the norm among its peers. It has undergone a restructuring exercise, wherein it has consolidated businesses into three distinct service lines to aid its transition from a pure-play technology company to a consulting firm. What remains a worry is whether the existing management at Infosys can guide the firm efficiently out of this transition phase.
Source : The Economic Times.