Thursday, 16 April 2009

Infy Guidance: Impact on years to come.

The result by Infosys yesterday were not that bad, they were almost on expected lines but what guidance Infy gave for the year ahead was really SHOCKING. Infy gave guidance of just around 1.5% of growth in rupee terms (a negative growth in dollar terms, worst still). This was the most shocking news of yesterday and I would say of this year so far.
Implication of this piece of news is:
1. Infosys is considered the bellwether of the overall Indian IT services industry and any trend set by it is considered to be replicated by the overall industry. So we can safely assume that the overall IT industry would also grow at the same rate. That is almost a 0% growth.
2. As there would be hardly any growth in IT service industry so there would not be need for new recruitment and certainly IT industry would like to rationalize their existing bench (generally Indian IT companies maintain up to 30% bench strength). This means there would be lay-off of resources that are currently on bench in companies.
3. Real estate in India is almost singularly dependent upon the uptake from IT industry be it for commercial or residential sector. So as a result I would say it’s safe to say that there would be no takers for real-estate that means the property prices are going to CRASH badly and LOUDLY in a years’ time.
4. Indian IT industry employs a huge no. of youth. As there would be hardly any growth this year so there is going to be significant problem of unemployment this financial year.
5. As lot of industries, home loan, financial industry to some extent and many more industries depend directly or indirectly for their growth on the growth of IT industry, so these industries would not be growing and that would impact employment too. So ultimately India would see huge unemployment problem among the educated youth (thankfully for political parties the election would be over by that time).
6. Infosys is saying that there would be hardly any new requirement for IT services in their target markets (western world), that clearly says that there would be no growth in those economies for this financial year. So a badly needed pickup in economic activities are still at least a year down the line. This means if we reasonably assume that economies in the west would start picking up only after this financial year (if nothing goes wrong now of which there is no surety). It would take at least a year for western economies to take off and then they will generate the requirement for IT offshoring so Indian IT companies should wait at least 2 year for their services to be required.
7. When in 2000 dotcom went bust, IT industry in India was impacted in 2001 and it took another 3 years for requirement to pick up. It’s only from 2003 end that serious recruitment started by IT companies. Which means a small problem like dotcom took two years off from the job market growth in India. Assume how long it will take this time as the problem is far far serious this time.

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