It never is wise to try and discern a trend from a single example. Ask stock market investors who sold off shares of information technology companies last week when industry bellwether Infosys turned in a tepid financial performance, taking it as the harbinger of an adverse trend. As it happened, Tata Consultancy Services, the software industry’s numero uno, and fourth-placed HCL Technologies, turned in stellar performances on Wednesday proving that it is indeed possible to perform well even in these difficult times. Importantly, they also showed up Infosys’s unattractive report card for what it is: a reflection of troubles within, compounded by headwinds in the market. The contrast couldn’t have been greater. While Infosys Managing Director and CEO S.D. Shibulal said its downbeat outlook and performance were a “reflection of the extreme volatility in the market,” his counterpart at TCS, N. Chandrasekaran, was characteristically upbeat: “…the environment presents a lot of opportunities for us … we have a strong deal pipeline, deal closures are happening and there is traction in discretionary spends.” Now, how does one explain contrasting assessments of the same market by two of the top three players?
Infosys has always laid store by what it calls “qualitative growth,” which is all about emphasising margins rather than pursuing volumes at any cost; it appears to be moving away from that now though. TCS is relatively more flexible on that especially when going after large deals. While the Infosys approach can work wonders in a strong market where clients do not mind spending the extra dollar, in a difficult market such as what prevails now, it is TCS’s strategy that will work. Clients are seeking to pare costs, which means that contracts are won by those who can bid aggressively. Infosys also depends much more than competitors on discretionary spending by clients, which is the first casualty in an adverse environment. That the company is in the midst of rolling out an all new business strategy now only compounds its problems. Infosys’s inherent strengths and its tremendous management bandwidth lend confidence that it will fly through this momentary turbulence without much damage. Indeed, it is important for the country’s outsourcing industry that it gets back to its winning ways soon; not merely because it employs over 1,13,000 people but also because it is one of India’s major success stories. The industry also needs Infosys to be firing on all cylinders at a time when newer hurdles are being put in its path in the U.S. — its biggest market — through immigration law changes that will make it expensive and difficult for Indian outsourcing companies to do business there.