On hold: Economic trends and political factors have been a downer for the technology sector
Image: Rupak De Chowdhuri /Reuters
Indian information-technology (IT) companies have been a mainstay of the Fab 50 since we began the list in 2005—until this year. Some continue to churn out good results, but not one of them is performing well enough to make the list this time. That’s a reflection of the turmoil in the sector, which is roiled by economic and political factors ranging from tighter rules for work permits in the US, Singapore, Australia and New Zealand to the planned exit of the UK from the European Union.
A strong rupee and weak IT spending in industries such as retail aren’t helping either. Meanwhile, automation and digitisation are eliminating jobs and changing job descriptions across the sector, leading to a huge need for retraining.
India’s $154-billion IT industry—employing 3.9 million people—expects lower export growth of 7-8 percent this year, compared with 8.6 percent last year. Indian companies rely heavily on the US market, but growth there has slowed. Banking and financial services, big contributors to IT industry revenue, have seen tepid growth.
So for the first time it’s a no-show this year for India’s top five. They’ve each made the list multiple times: Tata Consultancy Services (8 years), Infosys (6), HCL Technologies (6), Wipro (5), and Tech Mahindra (3). Even Satyam Computer Services cracked the list twice before it was felled by the largest fraud in Indian corporate history and sold to Tech Mahindra in 2009.
In the past year, TCS—India’s largest IT company—saw 6 percent revenue growth to $18 billion while net profits also grew by 6 percent to nearly $4 billion. Infosys, the second-largest, recorded a 4 percent rise in net profits. Wipro saw a 7 percent drop in net profits while Tech Mahindra experienced an 8.2 percent dip.
HCL Tech performed the best—registering 13 percent growth both in revenue and net profits—but the showing wasn’t strong enough to return it to the list this year. “This period of lower revenue growth has been playing out over four years—the growth was 14 percent in fiscal 2014 and it’s 9 percent this year,” says Ashish Chopra, research analyst at Mumbai’s Motilal Oswal. “Cloud, digital and automation technologies are allowing clients to optimise their IT budgets for existing work.”
In fact, TCS, Infosys and Tech Mahindra all saw a net reduction in their workforces for the quarter ended June 30. Analysts say this kind of shake-up is nothing new in the IT industry. But the magnitude is worrisome. IT industry body Nasscom projects that in three years, nearly a third of the workforce will be irrelevant and at least half of the remainder will need to be retrained.
(This story appears in the 29 September, 2017 issue of Forbes India. To visit our Archives, click here.)