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What TCS, Infosys say about the future
Infosys and TCS are two of the biggest companies in the Indian IT sector. Their results set the tune for forecasts about the whole sector.
Both the companies reported in-line numbers. We noted that, they had already given forecasts for the quarter in their mid-quarter updates. Stocks of some of the companies, which fell in the last three months, appreciated post the result announcements.
Here is what the two giants expect in the near future:
The rise in the rupee is considered the biggest threat to Indian IT companies. This is because any appreciation of the rupee against the dollar would lead to a fall in rupee revenues as most companies earn in foreign currencies. Since its fall last year to Rs 69-to-a-dollar levels, the rupee has appreciated to Rs 60-to-a-dollar levels. However, both TCS and Infosys are not worried about the rupee's rise. "Even though the rupee has appreciated by over 10%, the rally is not worrisome yet," TCS chief financial officer Rajesh Gopinathan said according to a report by the Financial Express, a business newspaper. This is because IT companies hedge the currencies in the forex market as a safeguard against currency fluctuations. Infosys too indicated that it will continue its current hedging strategy.
Mixed view on client spends:
Infosys warned that there was a dip in spending by US companies in the retail and consumer sectors as well as by hi-tech companies. It also projected that the financial services sector continues to remain weak in a conference call with analysts, according to a Business Standard report. This is a key reason why Infosys guided a revenue growth of 7-9% for FY15, lower than FY14's growth of 11.5%. However, TCS expects spending to rise and maintained a positive outlook for the financial year. "We are exiting the year with great momentum and we predict that FY15 will be better than FY14," TCS chief executive officer N Chandrasekaran said. TCS posted a dollar revenue growth of 16% in FY14.
Decline in Indian market:
Revenues from India business is expected to be weaker than usual for the next two quarters, according to the TCS CEO. This is because of the general elections. Usually, in an election year, projects are delayed and companies put investments on hold until a new government is formed. Also, the government is one of the biggest clients for Indian IT companies.
Employees are the biggest strength of an IT company. Attrition measures the amount of employees leaving a firm. Infosys' attrition has jumped to over 18% from 16% last year after a series of exits in the top management levels. "We expect attrition to moderate. We are seeing a tail effect. This is also an industry phenomenon," Infosys said in the conference call. Attrition for TCS stood at 11.3%. The company is not worried about attrition, and plans to add 55,000 employees during the year. This shows that TCS is more bullish about the future.
TCS said average pay hike in the fiscal year in India will be 10%, while Infosys has increased wages by 6-7%. "The increase in salaries and promotions that have been rolled out and the investment in new visas is likely to impact the first quarter margins by about 3%," Infosys chief financial officer Rajiv Bansal said. He further added that Infosys cannot afford further raise in wages, according to a Moneycontrol report. TCS too expects that operating margins will be affected in the April-June quarter. However, it said that better cost-cutting and efficient operations will make up for the cut during the fiscal year.
TCS expects to grow at a faster rate than the industry average. According to the industry lobby group Nasscom, the IT sector's revenue from software exports could grow 13-15% this financial year, pushed by spending by big foreign companies like General Electric and Citigroup.