Fairval

Notes on Indian equities, sectors and economy

Infy Results prove commodity IT story is over

Posted by fairval on April 13, 2013

InfyInfy’s results make one thing amply clear – the Indian commodity IT story is over. This was beginning to appear so in the last 2 years, these results drive the point home.

That is not to say that the industry is facing de-growth, but clearly it is will now no longer be a growth sector. The industry will grow in line with growth in global IT spends, which is at best low double digits,  most likely single digit in dollar terms.

Within the top cos, Infy is clearly struggling more than others. It is no longer able to command a premium, its margins are in threat. These points to one thing: its much vaunted global IT service delivery model – is now mostly commoditized.

A mature industry, delivering an undifferentiated commodity: that is what Indian IT has come to. Infy, and others, are trying hard to make a move into consulting, and increase value add to the client. The results from this are yet to show, it seems. They are a long way away from becoming an IBM.

So how will companies create value? I think focussed midcaps firms may do better than large caps, as KPIT is showing. Also, like in any mature industry, M&A is unavoidable. Infy can no longer bank on organic growth to deliver alpha.

Right now, the best thing that Infy shareholders can hope for is – that Infy itself gets acquired.  With performance meandering, and a horde of cash, it would have been in play if this was US.

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