AUGUST <strong>2016</strong> SECTOR OUTLOOK Companies Attrition Rate Utilisation Rate North America Europe + UK BFSI Infosys 21.2% 76.5% 62.0% 23.0% 33% TCS 13.6% 80.9% 53.5% 26.3% 40% Wipro 16.5% 78.8% 53.5% 25.4% 25% Mind Tree 16.5% 71.4% 66.7% 23.1% 25% Cyient 19.9% 73.5% 60.0%
STRONG ON CONSUMPTION Infosys 24.3 22.9 27.4 27.3 17.7 16.7 TCS 41.9 33.4 28.2 27.7 20.7 19.5 Wipro 20.4 17.9 21.2 20.1 15.3 15.1 HCL Technology 28.2 26.0 21.5 21.1 14.2 13.5 OFSS 32.7 32.2 43.3 42.4 26.8 22.7 Mind Tree 24.3 22.5 17.6 16.3 16.4 16.1 Cyient 17.4 17.5 13.6 13.9 17.0 14.9 Persistent Systems 19.5 18.4 17.9 16.1 18.6 17.3 Hexaware 28.8 30.2 16.5 17.0 16.4 14.6 NIIT Technology 18.9 16.3 17.7 16.9 10.0 10.1 Source: Bloomberg ROE EBITDA Margin P/E FY16 FY17E FY16 FY17E FY16 FY17E IT sector may face bumpy ride in the short term; Artificial Intelligence (AI), cloud computing and digital space will continue to experience good demand According to Nasscom, Indian IT sector is likely to grow by 10%-12% in FY17 on the back of uniform growth and ongoing demand for digitization. Overall, we expect the IT sector to continue to perform well although it may be a bumpy ride due to uncertainty around the upcoming US elections and Brexit impact. There is one more factor which needs attention i.e the rising need for automation of work amid increasing use of technology. Nasscom President Mr R Chandrashekhar expects 5%-10% of existing jobs to be automated in the next 10 years. MrChandrashekhar also pointed out that IT sector hiring may slow down due to margin pressure by the IT firms as well as increased automation of jobs. He said that “Hiring activity in the year before last was 2.20 lakh (new jobs were created in IT sector). Last year, (FY 2015-16) there were about two lakh additions. This financial year, we are expecting it to be on the lower side of that” .But he also pointed out that while the entry-level coding jobs will see a cut, the demand for skills in robotics, AI, digital space, biotech, nanotech, smart technologies, etc will likely increase. According to the Nasscom-McKinsey study about 60-70% of the existing staff will have to be re-skilled. But overall, India remains in a sweet spot with respect to IT sector demand over the coming years owing to its cost competitiveness feature, although the risk reward ratio is gradually fading as the visa costs have increased a lot from before. There is also an increasing demand for IT in healthcare and agriculture thanks to increasing use of cloud computing. Below are the commentary highlights of the management of the Q2FY16 quarter. Overall, most of the Indian IT companies expects their margins to remain under pressure due to delay in client spending and increasing automation of jobs. Some of the recent developments in the IT sector are as follows: • • • • • July,<strong>2016</strong>- Oracle Corp. agreed to pay $9.3 bn in cash in order to acquire NetSuite a cloud-computing firm at a 19% premium of $109. NetSuite is among the leaders in providing such software via subscriptionbased, on-demand computing, and buying it will help Oracle compete against SAP SE, the leader in ERP software, according to Gartner Inc. June, <strong>2016</strong>- Tata Consultancy Services (TCS), (BSE: 532540, NSE: TCS) a leading global IT services, consulting and business solutions organization, has announced a global partnership with Randstad Global IT Solutions, to design and deploy one of the world’s largest end-to-end public cloud marketplaces for IT infrastructure services. April <strong>2016</strong>- Persistent Systems (PSYS) has recently announced an agreement with IBM to work on Internet of Things (IoT). PSYS will become a strategic partner to develop IBM Watson IoT stack and also invest in supporting IBM’s platforms. IoT is an advanced version of technology which combines sensors, network, and technology to create software that gets updated on a real-time basis. HCL Tech has signed seven large deals worth $2bn in the January-March quarter. April, <strong>2016</strong>- Infosys, a global leader in consulting, technology, and next-generation services, announced the launch of Infosys Mana, a platform that brings machine learning together with the deep knowledge of an organization, to drive automation and innovation – enabling businesses to continuously reinvent their system landscapes. 31
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