Outlook for the IT Companies, Jan 2011

There have been lot of speculations on the golden days of the IT sector being over. Lot of people have been cautioning the students in terms of blindly running behind IT as a career, but the IT sector keeps on providing good news for everyone including the prospective employees and the investors.  Here is a broad overview on the performance of the top companies in the IT sector:

• The demand for IT outsourcing remained intact for the top IT players during the December 2010 quarter.This was despite the concerns over economic recovery in the US and Europe.
• The largest IT exporter TCS and the fourth largest HCL Technologies reported better business volumes than Infosys and Wipro,which are the second and third-biggest IT exporters in that order.
• The overall sequential growth at the aggregate level for the top four IT companies was moderate during the December 2010 quarter compared with the previous quarter. Net profit grew by 6.8%,slower than 9.2% in the September quarter.The companies were able to retain their operating margins during the December 2010 quarter for the second consecutive period even though the rupees movement against the major currencies was unfavourable.
• With economic uncertainty again looming on the horizon,clients are once again looking at a short term execution time frame.Instead of engaging into long-term contracts,these are broken into either smaller projects or the duration of contracts is divided into smaller periods.
• The rupee has gradually appreciated against the dollar for the past three quarters.An appreciating rupee hampers the realisations of exporting sectors.But this so far has not affected the performance of the top tier IT firms since many of them had booked forex hedges at higher rupee rates against the dollar in the past.These hedges are almost a year old now and most of them would expire in another couple of quarters.This may expose the net profitability of these companies to the forex fluctuations.
• On the positive side,top companies are still in a hiring mode.Companies,including TCS and Infosys,are expected to add more lateral or experience employees in the coming quarters.This serves as a leading indicator of the future demand.