Overview - Mixed Signal

May 16: Indian public awaited the results of the General Elections with
bated breath

May 24: Indian cricketing fraternity anticipated the results of the IPL finals
in Joburg with utmost keenness

July 10: The Indian IT industry is holding its collective breath as it waits for
the results of this years DQ Top20

There is neither any exaggeration nor anything fanciful on the part of the
Dataquest editors in comparing the DQ Top20 with the General Elections or IPL.
While the first two events obviously attracted a much wider audience, for the
Indian IT fraternity the DQ Top20 holds no less interestespecially in a
challenging year like FY 2008-09, unprecedented in this relatively young sector.

The dotcom bust at the turn of the millennium had posed its own challenges
and problems for the Indian IT industry; but even that was merely a teddy bears
picnic compared to the crises Indian IT had to withstand this year: the US and
global recession, global economic powerhouses (clients of Indian companies)
declaring bankruptcy, the Satyam fallout and its negative repercussions, Mumbai
26/11, the anti-outsourcing agenda of the US establishment, severe negative
sentiments among domestic consumers anticipating slowdown, the elections (and
its adjunct code of conduct) halting development work...the list just goes on.

However, if the industry had collectively anticipated a sharp decline across
all companies and segments, that did not happen. True, several blue-chips saw
their revenues heading south and suffered one of their worst years, but then
again for a large number (definitely in the majority) it was growth as usual.
There were several factors behind this non-uniform behavior across the industry:
the dollar appreciation against the rupee, the negative sentiments of domestic
consumers anticipating slowdown, longer decision cycle among Indian enterprises,
some sectors like government and telecom remaining relatively insulated from
slowdown and then again government purchase coming to a halt during the
elections.

New Faces
Ninad Karpe, Aptech	Sudip Nandy, Aricent	Sudeep Banerjee, L&T Infotech	Rajan Anandan, Microsoft India	Karandeep Singh, Sapient India
Deepak Patel, Aditya Birla Minacs	Dasaradha Gude, AMD India	Alok Ohrie EMC India	Ravishankar G, Geometric Software	Ganesh Ayaar, MphasiS
Jeya Kumar, Patni Computers	Anil Valluri, Sun Microsytems India	Sandeep Dhar, Tesco HSC	Ranjit Singh Yadav, Samsung	Krishnakumar Natarajan, Mindtree
Vivek Chopra, CSC	Krishnaswamy Subrahmaniam, CSC	Sanjay Kalra, Tech Mahendra	Keshav Murugesh, Syntel	Eiji Kato, Epson India
Rajeev Kaul, CMS Computers	Amit Chatterjee, CA India	J Ramachandran Birlasoft	Jangoo Dalal, Avaya GlobalConnect

Its extremely difficult to therefore calculate growth/de-growth across
sectors and segments and then try to map them to some trends. This DQ Top20
reiterates the impression that statistics are like miniskirts; they promise to
reveal much, but ultimately hide the crucial details. While obviously analysts
would derive some pattern even out of these numbers, it perhaps makes more sense
to dwell on certain generic trends rather than emphasizing too much on
statistics.

Dollar-Rupee Tango

Perhaps the biggest paradox was noticed in the IT services companies
(predominantly export-oriented) that constituted the largest category in the DQ
200. From the biggies like Wipro, Infosys or TCS to the tier-2 players like
Prithvi and Aricent, the dollar appreciation against the rupee came as a
godsend. While in FY 08, the strong showing of the rupee had led to a
significant slowdown in their growth figures, the tables have been reversed this
time (albeit taking into consideration rupee figures). Dollar growth has been
relatively subdued, but the moment one considers rupee growth (and thats what
DQ Top20 calculations are based upon) the figures look much healthier.

Being recession hit, FY 09 has been burdened with increased negative and single digit growth, while double digit growth took a dip. DQ 200 of 2009 includes 30 new companies which where not part of DQ 200 of 2008

Yes, we do have some exceptions: TCS at 22% (primarily due to forward
hedging), Tech Mahindra at 15% (the price of focusing on one vertical, primarily
in one geography) or smaller tier-2 players like Hexaware (high exposure to BFSI)
and SISL (selling off to parent and becoming a captive) whose rupee growths were
ordinary, to say the least. On the other hand, its not just Wipro and Infosys
or MphasiS whose rupee growths look quite spectacular in a challenging year, but
a host of relatively unfancied tier-2 players like Birlasoft (62%)or Mindtree
(67%) too were catapulted into the DQ 50 club, riding high on rupee growth.

Like previous year, Indian origin companies dominated the DQ 200 once again. Whether its the biggies like TCS, Wipro and Infosys or smaller players like Allied Digital, Educomp and Birlasoft, Indian companies contributed the lions share

Another conundrum was the exposure to the US and BFSI. Almost all Indian IT
service export companies shared this trend. While common logic would suggest an
impact owing to this dual exposure, the fact was that the effect was not so
severely felt by most companies. Some like Wipro and Polaris had clients like
Lehman Brothers, AIG or Citibank in their kitties (few high profile victims of
the slowdown), but still recorded substantial growth, others too seemed not to
be that seriously affected. There were the usual de-risking initiatives in
place: increasing verticalization, spread into more geographies (though Europe
too was severely affected) or looking at newer horizontals. Uncertainty in the
BFSI led to renegotiation of pricing, and further lag in deal-making. This
negative segment hurt other emerging verticals like retail (which accounted for
around 8% of revenues) spending too, and manufacturing (around 15%) which was
being affected in pockets (for instance, automobiles). Emerging markets,
including the domestic one, became fashionable. In FY 09, barring Wipro
(formidable domestic presence), others were barely starting or still testing
waters in the local market.

Domestic Twist

Even if few IT services export companies were gung-ho about their foray into
the domestic market, it was not such great news for most foreign MNCs that
primarily operated here. Negative consumer sentiments, longer decision cycles
for most enterprises, impact on BFSI, automotive, retail, manufacturing and even
government (in JFM once the elections were announced) all played their parts in
leading to a more subdued market. Vendors like Microsoft, Xerox, Lenovo or
Samsung (with substantial consumer focus) had a year to forget; those with
exposure to multiple verticals, particularly software specialists like SAP,
Oracle and Symantec, on the other hand, fared much better.

HP, with its wide portfolio, was virtually a microcosm of the entire Indian
IT industry and accordingly its various divisions mirrored the fortunes of
different sectorsthe consumer sides of the PSG and IPG businesses took a severe
beating, but it enjoyed overwhelming success in services and enterprise
software. Exceptions like Dell or TPV were there, but these could be counted on
the fingers. One apparent trend was that troubles started late September with
the worst crisis lasting throughout the OND quarter. Small signs of recovery
were visible in JFM, but overall rehabilitation is yet to happen in FY 10.

More hardware companies made it to the DQ 200 list this time, despite FY 09 being a troubled year for hardware vendors

SMB was one segment aggressively courted by all vendors throughout the
yearthey were relatively immune from the negative sentiments prevalent in the
market. The growing clout of SMBs particularly in smaller towns was evident from
their spend on IT in 2009, up by 22% over last year. This was the result of rise
in the number of small businesses (SBs). The shift was also recognized by all
major hardware vendors who either strengthened their dealer networks or
introduced products at a price point much lower than the others.