Are Indian IT Majors In A Denial, Defensive Mode?

by Sohini Bagchi    Jun 08, 2017

tech deals

India’s top IT services companies are in the news. At a time, when the country’s IT industry is already in the midst of a crisis, with Brexit and Trump at the helm and companies striving to survive in a market threatened by automation, top bosses have to fight on many fronts, including rumours that the companies believe are baseless. Considering the media reports were misrepresented, it is time IT biggies look at other options to survive or continue to live in a denial or defensive mode?

For example, Wipro recently countered rumors on the “possibility of selling out a part or whole of the business.” While Moneycontrol.com [which published the article] said the management had approached investment bankers for a valuation, the management has dismissed the story as “baseless and malicious”.

In a statement, Azim Premji clarified to his employees [and was circulated to media], “Over the past 50 years, I have seen Wipro grow from a small regional player in vegetable oils to a  global leader in technology. I continue to be incredibly excited about the potential of the IT industry and Wipro. I see enormous energy within the company to power the success of our clients and therefore the success of Wipro.”

“I remain as committed to Wipro as I have ever been. The news article about promoters of Wipro evaluating sale of their holding in the company is baseless and malicious. There is no truth to these unsubstantiated rumors, he said.

Infosys also sent counter statements on another report Infosys updates on COO Praveen Rao’s comments that the news reports on pricing cuts seen by the IT industry being attributed to the Infosys COO are incorrect.

“The comments made in the interview refer to cost take out efforts by clients towards reducing their program investments in the ‘run’ side of business, to reinvest them in newer technologies or the ‘change’ side of business. Cost take outs by clients do not necessarily translate into an impact on vendor pricing. There are enough levers available to meet the client demand on cost take-outs without necessarily impacting the pricing,” it said in a statement.

Read more: What Lies Ahead For Indian IT As Layoffs Loom?

“Infosys commentary on pricing is no different from what we have shared with the market earlier. We would like to reiterate that we are not seeing anything new on pricing. This has also been clarified in the webcast of the Morgan Stanley India Summit,” it added.

The problem is that even if the stories have been rebutted, and Wipro or Infosys may be forced to deny such claims, it is time Indian IT should look at its approach in a different lens without undermining what may be going on behind the scenes.

Noted journalist R Jagannathan notes in his article, Despite the denial[s], “…companies like Wipro, Infosys, HCL Technologies, Tech Mahindra and Cognizant can look at three possibilities: sale to a stronger rival, merger with stronger partners or long-term growth through key acquisitions and by shifting emphasis from labour services to platforms, products and consulting.”

The last option, he said is the toughest, but one that will yield the maximum benefits. “However, it depends on the staying power of the promoter. It can also fail. It is thus a double or quits scenario for Indian IT. The more risks it takes, the better the chances of success – or failure. The less risk it takes, the more the chances of gradual irrelevance,” he said.

Read more: Indian IT May Become Obsolete Without AI, Automation

Experts believe, in the current scenario, some promoters may well want to caon current valuations. If Premji is more interested in philanthropy than entrepreneurship, it may make sense for him to sell a part or the whole of Wipro. If Shiv Nadar of HCL Tech, who controls nearly 60 per cent of his company through domestic and foreign holdings, does not have heirs with the capacity to run the company, he too could explore to sell and concentrate on his philanthropic and other activities.

Neither Infosys and Cognizant, has a dominant promoter shareholding and hence had to announce costly buybacks to keep investors interested. As such Infosys is already hiring more Americans roughly 10,000 locals over the next few years. Thus it can be said that the these companies are increasingly having lesser ties with Indian market going forward.

Despite denials on the media interviews, Indian IT is at a crossroads struggling to determine its current weakness and future strength. Hence, it may make sense for some of them to take a fresh look at their strategies; if not, they may consider selling for good and move on.