Posts Tagged ‘Indian’

More IT Cos Now Screens Start-Ups For Partnerships

October 15th, 2014

Startups seem to be expanding and successfully attaining higher rates of success by building a larger consumer base not only in their own country, but around the globe as well. Startups are not only gaining the consumers trust but are making the mega corporations turn their heads towards them. It seems that after Infosys and Wipro more IT companies are investing in start-ups.Outsourcing22

Infosys and Wipro explored more in order  to pick up stake in startups focused on disruptive technologies have made investment bankers optimistic that country’s declining outsourcing sector could see more deals in the coming months.

However, both foreign and domestic bankers believe that the small acquisitions and partnerships would not be enough and a big buy-out has to be done before the rainmakers interfere and help companies merge and raise capital.

It sees that Wipro isn’t the only IT services company eyeing a model of acquiring a minority stake in a software product start-up, keeping it at arm’s length from its core business and, possibly, playing the role of a venture capitalist. There is company like Mindtree which is looking forward to explore this model.

This venture-capital model is in line with those of global technology companies. It is only in recent months that Indian IT services majors like Infosys and Wipro — announced setting aside $100 million each towards investment in start-ups. The way these funds will be utilized hasn’t been decided yet.

“This is certainly a trend that has picked up in recent days. Last year, when we were looking to raise funds for expansion, a few technology companies had approached us. Now, we are approached every day,” said Nishant Singh, chief executive of Noida-based CRMnext. “This is what I call ‘lazy innovation’.

A company with a size exceeding $1 billion finds it really hard to innovate. “Huge companies sitting on huge funds can easily keep some money aside and plant it into 20 different planters and wait for it to grow,” Adds Singh. CRMnext, is a cloud-based customer relationship management solution company, which works with several IT services companies such as Tata Consultancy Services, Wipro, Tech Mahindra and Polaris Financial Technology.


SOS to Indian enterprises: SMAC IT to them!

October 13th, 2014

At the India edition last week, of EMC Forum — the annual tech conference and showcase of the global leader in IT storage hardware and Big Data solutions — the Cloud loomed large, hovering over almost everything that was discussed. Indeed Social (media), Mobile Analytics and Cloud ( SMAC) was seen as the winning combo for Indian enterprises.Outsourcing17

Vishnu Anand spoke to two EMC experts for their take on what cloud strategy might be a best fit for India.

‘Hybrid cloud is a strategy, not a product’

CIOs across the globe have started to adopt hybrid cloud technologies to optimize cost and modify their IT and computing backbone with rapidly changing business needs and increased consumer demands. But it is also essential to make hybrid cloud technologies a part of your business strategy, not just a product that you deploy.

Christoph Thelsinger, VP, Systems Engineering, Asia Pacific & Japan, EMC says: “Most organizations in Asia approach us with one common challenge – having to meet consumer demands swiftly to ensure business agility. We always advice them to embrace hybrid cloud as a broad strategy, and not just a product.”

Thelsinger’s reasoning is that organizations that have already virtualised their systems, and are already operating in a cloud environment, experience the ‘burst’ scenario where there is a sudden – sometimes seasonal — need for compute power for a short span of time. After this time has elapsed, it is business as usual. “Since you cannot predict when the burst is going to occur, it makes sense to invoke compute power as and when you need it. This provides you the agility of a public cloud and the security of a private cloud”, he says. In such a scenario, the IT organization can take back control whenever it decides to.

Organizations that have explored the hybrid cloud are increasingly open to putting critical data on public cloud and accessing them on-demand. “The as-a-service model has a cost benefit to it. It may not be a decision initiated by the IT team. There is a definite cost advantage in putting your core ERP on the cloud, or even extending your data centre to the cloud. This cost consideration, in the days to come, will drive the market towards hybrid clouds”, suggests Thelsinger.

‘Nobody understands Cloud-as-a-Service better than India’

The concept of Cloud-as-a-Service, where organizations — big or small — can invoke computing power as and when they need it, dial-in/dial-out whenever business demands, is catching up in India and Japan. EMC, the global storage, virtualization and cloud services provider has identified a unique characteristic of India that makes it conducive to embrace and use cloud technologies at a greater pace than rest of the world.

David Webster, President, APAC & Japan said: “The IT ecosystem in India has grown up on the concept of outsourcing, and outsourcing is all about sub-contracting your IT operations to a third party and focusing on your core business. The guiding principle of Cloud-as-a-service is very similar to outsourcing, and this is precisely why India is today at the forefront of adopting new Cloud technologies.”

Webster went on to explain that the new-age consumer demands the same level of computing of an advanced laptop or a desktop, in a mobile smartphone. “With 81% of the country’s population using mobile devices, more and more Indians are using their personal mobile phones for official work, including business critical operations like secure bank transactions, stock market monitoring, and even managing their office ERP systems.”

He however cautions: “In order to woo the new-age Indian mobile consumer, organizations and service providers need to pull up their socks and create a smooth and uninterrupted computing that is cross-platform and device agnostic.”

Explaining how the SMAC ideology is a ‘best fit’ for India, Webster said, “The mobile is in more ways than one a ‘third platform’ in computing. The mainframes defined the first platform, while the PC and client/server architecture defined the second platform. EMC believes that the third platform is all about mobile interspersed with Big Data, analytics, Cloud and social business. And India will have a huge role to play”.


Infosys shares bounce ahead of strategy update

October 13th, 2014

Shares in Infosys jumped 6 per cent on Friday as the Indian IT bellwether reported an improvement in margins and a bonus share issue, as investors await guidance from the company’s new chief executive.Outsourcing14

Vishal Sikka, who took the reins in August, is expected to outline his strategy later today, as the former SAP executive looks to revive the struggling outsourcer with new high-growth software development in areas such as cloud computing and data analytics.

In the first set of results under his leadership Infosys posted better than expected net profit of Rs31bn ($500m) in the three months ended in September, up 29 per cent year-on-year, on revenues of Rs133.4, up 2.9 per cent.

The Bangalore-based group had previously forecast net profit of Rs29bn on revenues of Rs132.1bn, according to analysts’ consensus predictions by Thomson Reuters.
The cash-rich company also announced an interim dividend of Rs30 per share, and said it planned to issue one bonus share for every share held.

“The board approved and recommended the issuance in order to increase the liquidity of its shares and to expand the retail shareholder base,” the company said.
The second quarter of the financial year is a seasonally strong period for the IT services sector, as client spending is solid. Indian groups have also been helped by currency movements and the fact that wage increases occurred earlier in the year.

“This is sentiment positive for the stock,” says Ankita Somani, an IT analyst at MSFL research. “But what I want to see now is what Infosys is planning in terms of its big bets? What are they going to do to catch up with peers in terms of dollar revenue growth rates?”

A pioneer in the IT outsourcing sector, Infosys has fallen behind rivals such as Tata Consultancy Services, and Mr Sikka has suggested it may be another two years before the group’s financial results improve again.

Mr Sikka on Friday said that the company’s core services business would not be compromised by the new focus on innovation. “Without one we are just dreamers and without the other one we are just grinders,” he said.

Industry analysts remain concerned about high staff turnover at the group. At least 10 senior executives have quit in roughly a year, prior to Mr Sikka’s appointment and the new leader is not planning further restructuring.

“We are very fortunate to have a young, dynamic and a very passionate management team,” Mr Sikka said. “I see no structural reasons to make any changes at this point.”
The churn began after co-founder and outsourcing pioneer, Narayana Murthy, returned to the group to shore up the troubled company.

Before he stepped down as executive chairman in June, Mr Murthy had focused on cutting costs and reinforcing Infosys’s bread-and-butter services business, following a mistimed attempt to move into higher value services under the “Infosys 3.0” strategy.

“This is the right time, when the macroeconomic environment is improving, they have a new leader who’s a tech visionary,” said Shashi Bhusan, an analyst at Mumbai-based brokerage Prabhudas Lilladher. “I think many of the initiatives they started two or three years back will flourish under this new leadership.”
Infosys shares were up 6 per cent by 10am in Mumbai at Rs3,837.70.


Top 5 IT players likely to report robust growth in Q2

October 9th, 2014

Top IT stocks fell sharply on Wednesday after touching record intra-day levels a day earlier. Citi Research India, in a report, said it was toning down optimism over the sector’s future performance, apart from downgrading Infosys ratings from buy to neutral, Tech Mahindra from neutral to sell, and Mindtree from buy to sell, a move which left investors wary of the sector. These stocks may exhibit greater volatility in coming weeks, depending on the quarterly performance of the companies.Outsourcing3

However, despite the scepticism, top five IT players are expected to report robust sequential growth in revenue and net profit for the September 2014 quarter because of better demand traction in the US and a reviving European market for IT outsourcing. A lack of sharp appreciation in the rupee against major currencies compared with the quarter-ago levels, too, augurs well.

The sample of TCS, Infosys, Wipro and Tech Mahindra is expected to report a growth of 5.7% in sales and 3% in net profit sequentially. It’s based on average of estimates reported by eight brokerages, including Barclays Research India, Citi Research India, Edelweiss Securities, Kotak Institutional Equities, Motilal Oswal Securities, MSFL, Anand Rathi Research and Religare Institutional Research, and internal estimates of the ET Intelligence Group.

Compare this with a lacklustre 0.1% growth in revenue and 1.9% drop in profit sequentially for the June 2014 quarter. TCS will stand out due to expected higher organic growth and the benefit from integration with Mitsubishi joint venture.

Historically, the demand scenario is upbeat during the September quarter for Indian IT outsourcing companies. This will benefit top players such as TCS and HCL Technologies, which have shown aggression in bagging large multi-year projects from the US and European clients.

Among the top five, TCS is expected to report the highest dollar-denominated revenue growth of 5-7% sequentially. Apart from growth in existing business, it also includes an increase of 2-2.5% due to integration of revenue from the joint venture with Mitsubishi. This will translate into 8% growth in revenue at Rs 23,847 crore, according to average estimates.

Other players in the top five are likely to report 4-4.5% revenue growth in rupee terms. Apart from revenue growth, TCS will also lead the pack on the net profit front with a likely 7% growth sequentially. Companies including Wipro and HCL Tech are likely to show deceleration in net profit due to the impact of increase in wages. Their operating margin is expected to drop by 30-40 basis points.

Investors will closely track the management commentary of Infosys for initial signs of recovery. It will be the first full quarter for the company under new CEO Vishal Sikka.


Jack Palmer’s New Infosys Lawsuit Shows Indian IT Industry’s Visa Troubles Won’t Go Away

October 7th, 2014

Jack Palmer, the former Infosys Ltd. employee whose lawsuit alleging harassment by the Indian IT services provider was thrown out in 2012, has filed a new suit against the company. The move highlights the $118 billion outsourcing industry’s woes that arise from its dependence on American work visas.Outsourcing45

The new lawsuit, filed in New Jersey District Court on Oct. 2, names Infosys, founder Narayana Murthy, former CEO SD Shibulal and others as defendants. In the original whistleblower lawsuit, which a court in Alabama threw out, Palmer had claimed he was harassed by Bangalore-based Infosys for pointing out alleged wrongful use of certain types of short-term work visas.

“Palmer’s current complaint in the United States District Court in New Jersey is a repetition of issues that were tried and dismissed by a federal court in 2012,” Infosys said in an emailed statement to International Business Times on Monday. “Palmer resigned in 2013 November and released the company from the charges he has alleged in the complaint. We believe this is without any legal merit and will vigorously defend this complaint. We expect the issue to be resolved at the earliest.”

India’s IT outsourcing industry, which includes large India-based centers of U.S. multinational companies, takes advantage of the H-1B visa to place short-term work visa holders at client sites in the U.S. when required, avoiding the costlier option of hiring U.S. citizens locally. The non-immigrant visa allows skilled workers to work in the U.S. for up to six years. The practice has attracted close scrutiny from U.S. lawmakers, including visa fee increases and a Justice Department investigation that Infosys settled for $34 million last year. There are ongoing attempts to change the rules governing H-1B visas such as those proposed in the larger immigration overhaul being debated in Congress.

Changes proposed to H-1B rules were only one part of the bill S. 744, titled Border Security, Economic Opportunity, and Immigration Modernization Act, introduced in the spring of 2013 by a bipartisan group of eight senators, with Sen. Charles Schumer as the main sponsor. The bill seeks to overhaul America’s immigration system, from securing its borders to fixing the status of some 11 million illegal immigrants.

Changes to the H-1B visa program could include barring any company, which has more than 15 percent of its staff holding H-1B or L1 visas, from placing those staff at client sites in the U.S. Instead, the company would have to use locally hired Americans. The L1 visa is another type of non-immigrant work visa used mostly for intra-company transfers.

This would directly hit the Indian IT outsourcing model, which relies heavily on H-1B visas. Typically, two-thirds of the staff of Indian IT companies in the U.S. are those imported on these visas. The ban would mean either providing services from outside the U.S. or hiring locals, which would in turn mean a higher cost of doing business.

The House of Representatives was looking to debate its own version of the bill, passed by the Senate in June 2013, even as the Indian IT industry lobbied Washington hard to water down those proposals. However, events including House Majority Leader Eric Cantor’s defeat in the Virginia primaries overtook the lower house’s debate on the bill, diminishing the prospect of the proposals becoming law soon.

“We’re certainly not assuming it (immigration reform) as dead or gone away, we’re viewing it more as postponed,” Gordon Coburn, president of Cognizant Technology Solutions Corp., told investors in a meeting organized by Deutsche Bank on Sept. 10.

Cognizant, with the bulk of its staff in India, and its Indian rivals such as Tata Consultancy Services Ltd. and Infosys, are among the biggest beneficiaries of the H-1B visa program.

“Immigration bill, though it is still not off the table, there is not much noise in the last couple of quarters, but with the mid-term elections you could again see noise levels building up,” Rajiv Bansal, chief financial officer of Infosys, told investors at a conference organized by brokerage CLSA Ltd. in Hong Kong on Sept. 14. He was, however, speaking in the context of why it’s important for Infosys to maintain a large cash reserve.

A second, less onerous, change proposed was that companies must progressively reduce the proportion of their U.S. staff holding non-immigrant visas (predominantly H-1B and some L1 visas) from the fiscal year after 2016. At most, 50 percent of their U.S. staff could be non-immigrants and the other half must be U.S. citizens.

The current annual cap on the number of H-1B visas awarded is 65,000, with an additional 20,000 that can go to graduates of advanced degrees from U.S. universities. This is for the fiscal year 2015 that begins Oct. 1 this year. The immigration bill, however, includes provisions to raise the cap to as much as 180,000. U.S. Citizenship and Immigration Services said on April 7 that it had received enough applications to hit the cap for the current year, and a computer-generated random selection process will be used to select those who get the visas.

Palmer’s original lawsuit that was dismissed included an allegation that Infosys misused another type of visa, the B-1 visa, to send IT staff from India to U.S. client sites, though such visas can only be used for purposes like business meetings and not for billable work.


Why is Indian outward FDI shying away from South Asia?

October 1st, 2014

THERE have been promises of greater Indian investment in South Asia for a long time. A report produced by the Asian DevelopmenOutsourcing43t Bank (ADB) in 2007 argued that India would play a key role in investing in South Asia and this in turn will stimulate intra-regional trade in the region. The report made special reference to the rapidly growing Indian IT industry and identified it as a potential investor in South Asia. The ADB argued that business process outsourcing, knowledge process outsourcing, call centres and other IT related sub-contracting would shift to regional countries as a response to increased costs of doing business in India.

It predicted that a somewhat similar experience to Japanese foreign direct investment (FDI) inflows to ASEAN countries in the 1980s — the so-called ‘flying geese’ phenomenon, whereby industries are first established in more developed countries then move progressively to less developed ones — would be seen in South Asia with FDI from the Indian IT sector taking the lead. But this hardly happened over the last five years, with Indian IT investors preferring countries like the US, the UK and Singapore for investment rather than other South Asian countries.

The total FDI outflow from India to the rest of the world increased from US$ 20 million in the early 1990s to US$ 15 billion by 2011, albeit with some fluctuations. India is the largest investor among South Asian Association for Regional Cooperation (SAARC) countries in South Asia but the regional share of Indian outward FDI has declined continuously from 4.5 per cent in 2003–2004 to a mere 0.1 per cent in 2006–2007. Generally, FDI from large developing countries like China and Brazil is heavily concentrated in other developing countries. But during the past decade, the destination of Indian FDI has shifted in favour of developed countries and transitional economies. This has partly contributed to the decline in the South Asian share.

A study of Indian outward investment by United Nations Conference on Trade and Development in 2004 identified four reasons why Indian FDI generally flows to developed countries. First, Indian firms are looking for international brand names, for instance, Ranbaxy Technologies acquiring the French firm RPG Aventis in 2003 and Tata Tea acquiring UK-based Tetley Tea in 2000. Second, access to technology and knowledge has been a strategic consideration for Indian firms seeking to strengthen their competitiveness and to move up the production value chain; one example of this would be Wipro acquiring the American firm Nerve Wire Inc.

Third, the success of Indian service providers in outsourcing IT Services, BPO and call centres by firms in developed countries has exposed them to knowledge and methods of conducting international business, which in turn has induced outward FDI with demonstration and spill over benefits. Fourth, securing natural resources has become an important driver for Indian outward FDI. For example, Hindalco acquired two copper mines in Australia, and ONGC has bought a 20 per cent stake in the Sakhalin-I oil and gas field in Russia. All these factors point to Indian firms wanting to develop a portfolio of locational assets as a source of international competitiveness and visibility.

But, leaving aside these factors, the general business climate in the South Asian region is also a factor that discourages Indian FDI. Most South Asian countries rank low in indicators of the ease of doing business although they still possess the comparative advantage of low labour costs. Regional countries also fear Indian domination and therefore are much friendlier to non-Indian sources of FDI. For example, in Bangladesh in the early 2000s, the Indian group Tata’s proposal to invest US$3.6 billion in a urea fertiliser plant and a steel mill and the Mittal Group’s proposal to invest US$2.5 billion in a steel mill, both fell apart due to domestic political developments.

In Sri Lanka, the Indian Amul Company came to the market in 1997 for liquid milk production and functioned till 2000, and then pulled out its investment due to trade union hostilities in the factory incited by the milk powder import lobby in Sri Lanka. In the Maldives, the GMR Group of India, which embarked on an airport modernization project in 2010, had to exit the project due to unilateral termination by the Maldivian government in 2012. The point to be noted is that in general, there is a non-friendly attitude (not necessarily hostile) towards Indian FDI in the region.

With low intra-regional trade (5 per cent), the trade-investment nexus is weak in the SAARC region. Perhaps it is time to make investment liberalization a priority item on the SAARC agenda if more Indian outward FDI is to be seen in the region. More broadly, there also needs to be a change in attitude both from India and its neighbours if more investment from India is to flow to the South Asian region.

The writer is the Executive Director of the Institute of Policy Studies of Sri Lanka.


Accenture results: Takeaways for Indian IT

September 29th, 2014

Accenture Plc reported decent results for the year ended August, although its outlook for the next year is a tad disappointing. The company said it expects revenue to grow between 4% and 7% in constant currency, despite the fact that revenue grew 8% and 7%, respectively, in the preceding two quarters. Outsourcing31

Also, according to consensus estimates, the firm is expected to grow 6% in dollar terms in the year till August 2015; adjusted for a forex headwind of 2%, dollar revenue growth is expected to be between 2% and 5%, according to Accenture. US-based analysts at Citigroup Research said in a note to clients, “The Q1-FY15 revenue guide of $7.55-7.80 billion (consensus $7.8 billion) implies a possibly slower start to the year in spite of acquisition impact.” Not surprisingly, the Accenture stock dropped a bit after the results were announced; the shares have declined 3.4% year-to-date.

Indian IT stocks shrugged off this news, and the National Stock Exchange’s CNX IT index rose marginally. The index continues to be perched close to its all-time highs. For some time, Indian IT stocks have charted their own course, on the back of market share gains by companies such as Tata Consultancy Services Ltd.

In mid-July, International Business Machines Corp. (IBM) reported weaker-than-expected results for its services business. Later, Citi’s India-based analysts wrote in a note to clients that most factors that affected IBM’s services business were not applicable to Indian IT firms. “Pricing pressure from competitors—offshore competition and commoditization of lower end services may be putting some pressure (on IBM)—an industrywide phenomenon. For Indian players, pricing is flattish as commoditization at the lower end is largely offset by increase in higher priced service lines such as digital (services).” Another factor that has helped sustain investor sentiment for Indian IT is that the rupee has depreciated by more than 5% in the past four months against the dollar.

It must also be noted that not all aspects of Accenture’s results were disappointing. In the quarter ended August, the company did better than expected, with reported revenue being higher than consensus estimates. Much of the upside came from the outsourcing business, while the amount of new business bookings was lower than estimates, at $8.3 billion.

The company said in a call with analysts that consulting bookings last quarter reflected good demand for systems integration and management consulting.

But as Citi’s India analysts point out, the key takeaway from Accenture’s results for Indian IT is the company’s use of cash. Last year, it gave back 93% of its cash flow from operations to shareholders through dividend and share buybacks. This has helped the company sustain valuation multiples. Indian companies could take a leaf or two out of Accenture’s books. Many of them are holding large amounts of cash, resulting in mediocre return for shareholders. Returning cash or making prudent acquisitions is the need of the hour as growth continues to slow off a high base.


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