What's worrying Indian IT services and can Infosys, TCS, Wipro, HCL Tech come out unscath?

CEOs aren't used to listening to sermons. Not from reporters and not from analysts. But that's exactly what happened, last fortnight, when Nimish Joshi, an analyst with brokerage firm CLSA addressed an open letter to Infosys CEO SD Shibulal questioning the direction in which the Bangalore-headquartered IT services company was headed. 

 

The part homily, part Jerry Maguire-esque letter had D-Street analysts wagging chins about the merit and method of the well-articulated note. Everybody agreed on one thing, though: this was unusual. But then again, what was also unusual was that Infosys missed its quarterly guidance, one which it had lowered just three months before, after a long, long time.

Like Joshi succinctly put it, "For much of last decade, Infosys' guidance has been a line in the sand to gauge not just company growth but also sector-wide growth. Unfortunately, the divergence in actual performance and guidance over the last 18-24 months has meant that investor confidence in your guidance has gone down. The big miss in the latest quarter has only served to further that sentiment. I hope the recent miss was a blip after 47 straight quarters of meeting quarterly guidance."

These are unusual and uncertain times for Infosys and the Indian IT industry. The spate of quarterly results last week added to that air of uncertainty. While Infosys and Wipro fended off questions about their weak guidance, TCS celebrated its first ever $10 billion annual revenue with some positive commentary about the year ahead. (TCS doesn't give quarterly or annual guidance.)

That made analysts split hairs on whether Infosys and Wipro were facing "company-specific problems" or if the industry as a whole was in hot water. Either way, the general consensus was more or less on the lines of what Infosys founder NR Narayana Murthy had said more than a decade ago about the murky market environment prevailing then: "There's so much fog on the windscreen." A helluva lot of it.

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