A possible slowdown in the US economy is unlikely to hit the growth momentum for Indian IT services companies, say analysts, because their clients in the largest market would outsource more digital technology-led services that they have built over the past couple of years by also hiring local workforce in the US.
Companies such as Tata Consultancy Services, InfosysNSE 0.01 %, HCL TechnologiesNSE 0.21 % and WiproNSE -0.02 %, besides midtier firms like L&T Infotech and CSS Corp are already disrupting their business models where they look at building value through productivity and IP, moving away from the traditional cost-arbitrage model. “If it is a moderate downturn, given the digital imperative, hopefully Indian IT can ride it,” Sangeeta Gupta, senior vice-president at Nasscom, told ET. “Digital technology spend is significantly low and I think the headroom for growth is much higher… Banks and financial services companies are already thinking about what can be done to invest in these technologies to deal with such change.”
Last week, Goldman Sachs cut the US economy growth forecast for the first half of 2019 to 2% from 2.4%, saying it was still “not worried about a recession”. While the bank was optimistic of a soft landing of the US economy, a Duke University survey in December of US CFOs claimed nearly half the chief financial officers expected the country to hit a recession by end-2019. The worst-case projections included a fall in capital spending with flat hiring.
Indian firms were among the biggest beneficiaries in the last two recessions as US companies outsourced work offshore for costs, forcing their global rivals such as IBM and Capgemini to replicate their model by ramping up their workforce significantly in India. It also saw US firms set up their captive centres in India, a trend that is being witnessed again in the last two years as they look for talent in newer areas such as digital and analytics.
“I do see an increase in IT-centric work going to some of the Indianheritage services providers, but not only to save on costs, also to contract for project work in complex areas such as automation, analytics and machine learning as the need for skilled resources becomes increasingly desperate from US and European businesses,” said Phil Fersht, CEO, HfS Research.
After a slowdown in business in the last three years due to technology shifts to digital and cloud and protectionism, Indian firms are back on the growth mode this fiscal year. It is being led by TCS, which is expected to report doubledigit growth this fiscal year and the next on the back of multibillion-dollar orders.
“In the last economic crisis in 2008-2009, offshore outsourcers held on fairly well initially, and made adjustments to boost revenue and profitability. Hiring continued to happen although at a reduced pace. However, towards the fag end of the recession, it was clear that IT firms were witnessing pricing pressures and slowdown in business velocity,” said Manish Tandon, chief executive of CSS Corp. He added that the industry had shown tremendous resilience in the past and reinvented itself through flexible business models.
“Hence, it might emerge as a strong partner for global organisations to wade through their economic pressures.”
Pinkesh Shah, an executive board member and faculty at California-headquartered Institute of Product Leadership, believes “the economic concerns are real” and this could be more of “an opportunity than a threat” to deliver engaged value to their clients in the US and Europe. “Look at what HCL Tech has done with their product client companies like Symantec and what Cognizant has done with Intuit — they are not just merely doing low-end outsourcing work but co-owning the product roadmap and prioritisation and actively participating in their productising process,” said Shah.