All four large companies have declared their numbers. There is a huge disparity between what TCS has guided, whatInfosys has admitted, how Wipro has shared future outlook versus what HCL has guided.
That is correct. The results point to a mixed picture as far as the health of near-term demand in the IT sector is concerned. This is not surprising. In terms of industry growth slowing down from 11% to 14%, there will be polarisation in performance within the largecap sector.
So companies like TCS, Cognizant, etc., should go well ahead of 15%. Hence, by definition, other companies would come well below that. In times of slowing growth, polarisation of performance in largecaps is much more than 04-08.
Certain companies are facing structural issues as well; we can particularly highlight Infosys here. They have a fairly ambitious agenda to get things back on track. It is a mix of both these factors at play.
The quarterly performance in the outlook commentary from managements has been a bit confusing. Which side are you on? Is the demand environment bleak as Infosys' management points out or is it showing signs of improvement as TCS is indicating? How would you peg the big four now?
The demand environment is better today than three to six months back. Data points in the US are easing. This will transalate the lag into better returns for those focused on winning market share. Infosys has company-specific issues. They are just blaming the environment for the things that are impacting them at the company-specific level.
It goes back to who is winning market share in the current environment. Clearly, if you have to win market share, you are winning it against your peers as opposed to 04 to 08.
I would not say this is the last thing on the matter. Early May, Cognizant will declare its earnings and they should give a sense of the direction the IT sector is going. My sense is things will be alright. Demand is certainly better today than three to six months back, but only some companies are gaining market share at their peers' expense.
What is the pecking order for you considering you have been the first one to point out structural issues faced by Infy?
The pecking order would be TCS, Wipro, HCL Tech and Infosys. Let me take you through the upsides we are looking at. We are looking at a barely 10% upside in TCS, considering the stock has moved up. But it is the stock to hold on to. Investors do not have much confidence in Infosys getting its act together. So, TCS remains a stock to go to.
From a differentiated performance, despite not an enthusing Q1 FY13 guidance, we can give the benefit to Wipro. We think it is a one off and the company can gets it act together starting Q2 FY13. Therefore, from an upside potential perspective, Wipro can give you anywhere between 15% and 20% in a year.
HCL has been a good performer. They are winning market share, not just against Indian competitors but also against global counterparts like IBM and Accenture. We should see a 10% to 12% there. The real laggard is Infosys. Unless, it can get its issues back together and resolve them meaningfully, even meeting the 8% to 10% guidance on an organic basis looks difficult.
What are the chances of Infosys getting their mojo back? They have a utilisation rate of 70%. If the demand environment picks up, they could surprise you on the upside because they are still hiring.
There are two ways to look at it. Utilisation is low because the company has not been able to generate demand. Since utilisation is low, I am in a position to capitalise on demand when it comes -- this is not a fair argument.
The fact remains that you should be in a position to capitalise on demand. Today, Infosys' ability to generate or capitalise on demand is certainly much weaker than a year ago. In that sense, you are making an error trying to hire and keeping utilisation low.
This limits your ability to give wage increases. So I suspect that Infosys' decision to not give wage increases and to freeze wage hikes has to do with a very high bench that they have. If you are unable to generate demand, low utilisation can be a problem for you.
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