Indian IT Companies Losing The Race To Global Peers

Many Hurdles come before Indian IT Companies

It is the Story of Rajlakshmi NirmalI at The Hindu: T’s on track, declare some. Not really, say others. Of late, opinion is divided on the strategy adopted by Indian IT companies. While one set of investors criticise them for keeping cash idle and losing the race to global peers, the other set is glad that they are not setting foot in unknown territory but, instead, saving cash for a rainy day.
But what the second lot don’t seem to realise is that the global market for technology is changing at a rapid speed and Indian IT companies need to change and think ‘big’ to stay relevant. Already, export revenue growth has slowed to single digit (from 13.8 per cent in 2013-14 to 10.3 per cent 2015-16. In the current year, Nasscom estimates growth to be 8-10 per cent) and order book expansion is happening at snail’s pace.
If Indian companies do not do a ctrl+alt+delete of their conservative ways and log into digital and consulting capabilities, they can lose significant market share. Also, with protectionism raising its head, uncertainty has multiplied manifold, taking away the ‘defensive’ tag from IT stocks. Against this background, it makes sense for investors to review thier portfolio of IT stocks. Here’s a closer look at the key challenges the industry faces and how the big players are faring.
Young software engineers in India have to let go of their US dream. The protectionist rhetoric has become louder in the US with the new President, Donald Trump. Last month, Indian IT stocks nose-dived in bourses after the news of new legislation in the US to curtail H-1B visas and increase the minimum salary for these visa holders. While the legislation has not been passed yet, there is fear that it may crimp the Indian IT sector that takes a chunk of these visas every year. Over 60 per cent of the revenue of the $150-billion-plus Indian IT industry is from exports to the US. Tech majors such as TCS, Infosys, Wipro, HCL Technologies and Tech Mahindra have 20 to 40 per cent of their employees onsite. According to investment firm CLSA, Tech Mahindra has the highest share of onsite employees (totally 39 per cent including 19 per cent in North America) and TCS has the least (totally 19 per cent including 10 per cent in America). Infosys has about 26 per cent of its employees working onsite (that includes 13 per cent in the US). When it comes to filling slots in their US offices, most Indian tech companies prefer to send people across on H-1B visas, given the high cost of hiring employees locally. At TCS, for instance, only 35 per cent of the headcount in the US are locals, for Infosys it is 34 per cent. So, any visa fee hike by the US may impact margins of Indian IT companies significantly. There may be margin erosion of around 200-300 basis points over a period of time as all old visas too get renewed. Wipro and HCL Technologies are placed better. Of the total employees working onsite in the US, 50 per cent are locals for Wipro and 65 per cent are locals for HCL Technologies.