2013 might bring cheer to the IT sector; but only in 2nd half

Going by the change of events and recent developments, there are enough indications that 2013 will perhaps be a better year for the information technology (IT) outsourcing services industry, compared with the previous year. However, a clear-cut recovery could elude the industry until the second half of 2013.

Global clients usually finalise their IT budget towards the first week of January every year. While the IT services firms are still trying to figure out what could be the shape of the IT budgets for 2013, early indications point to flat or marginally higher spend than the previous year.

"We see that the mood of the global clients is sound and upbeat. But for those positive sentiments to convert into actual spending, we expect that to happen in the second half of 2013," says Sudin Apte, CEO & research director of advisory firm Offshore Insights.

According to him, 2013 is expected to be a better year. "If growth this year is expected to be between 10-12 per cent, we expect it to be 13-15 per cent next year."

Industry leaders say that while budget is one of the issues, what is troubling them most is the lack of visibility or certainty about the business environment. That's because most key markets are not yet out of the slow economic phase. The fiscal cliff (the simultaneous expiry of tax breaks and the introduction of spending cuts) in the US is not yet over.

There are also discussions happening in the US to increase the debt ceiling. Europe is contracting amid reports that the continent could continue to be in recession for two more years.

"If you put all those together, it's going to be a weak recovery for the global economy," said V Balakrishnan, former chief financial officer and director of Infosys. "When the certainty (about economy) is not there, people will continue to be cautious in their spending."

The US and Europe are the two major markets for Indian IT services companies, accounting for about 80 per cent of their overall exports revenues. Post the Lehman Brothers' collapse in 2008 September, the demand environment in both these markets has seen a phenomenal change.

While the IT budgets themselves have contracted for most clients, many are holding back even their planned investments.

"We feel 2013-14 is going to be a better year,"

N Chandrasekaran, managing director & CEO, Tata Consultancy Services, India's largest IT services company, had said recently. "The US is recovering post-elections. There'll be a focus on job growth and economic growth. In my mind, it will do better not only as an economy, but (also) in the tech sector."

Industry body Nasscom, which had initially projected a growth of 11-14 per cent, recently revised its forecast to 11 per cent on the back of the slow recovery in key markets. Nasdaq-listed IT services firm Cognizant Technology Corp, which has a significant delivery presence in India and competes with Indian IT services providers, recently said the company might see a growth of 16 per cent in 2013.

Besides, Hexaware Technologies has revised its fourth quarter and 2012 annual guidance citing changes in the project plans of a customer.

Some analysts fear that Infosys, which had given a conservative guidance for FY13, may not be able to meet the target.

However, Som Mittal, president, Nasscom, says those quarterly developments do not indicate a clear trend. "You should wait for two more quarters to get a clear picture. We believe that in the first two quarters of 2013, you will see the trends change to positive," said Mittal. "So, I would think 2013 is definitely going to be better."