Software: Growing strength by strength…

Indian software industry continued its strong growth momentum during 2006, as the ‘global delivery model’ gained greater traction among the outsourcers. While volume growth for tech majors remained robust throughout the year, we were also witness to a host of companies spreading their wings wide into the global marketplace. However, relative to the benchmark BSE Sensex, the BSE InfoTech’s performance was a bit subdued. While the performance of top players (Infosys, TCS and Satyam) was above par, the laggards of 2005, like MphasiS and NIIT were amongst the picks of the lot. Our 2006 assumptions Vs reality. Increasing global clout: At the end of the previous year, we had expected Indian software companies to increase their clout in the global technology industry. Our assumptions were backed by Indian companies’ inherent advantages like low cost and highly skilled labour, time zone differential, enabling regulatory environment, mastery of the art of global delivery, execution excellence and strong relationships with Fortune 1000 majors. And as we close in on the year 2006, we are being left a satisfied lot! The 5-year US$ 1 bn deal won by Tech Mahindra from British Telecom is a case in point. Amongst the leaders, TCS came out with sterling performances during the year. It churned out an annual income worth a whopping US$ 3 bn in FY06. Infosys, which celebrated its 25th anniversary this year, was not left far behind with strong growth seen across all its major verticals. Wipro also delivered robust performances during the year. Up the value chain: Software companies continue with their move up the value chain, considering that the share of higher-end services like package implementation, infrastructure management services, systems integration and consulting saw an increase in their overall revenue mix. In 2006, Indian technology companies were also able to build up on their domain expertise, either by way of organic growth or through acquiring the necessary capabilities. The latter saw a host of acquisitions made by companies across the spectrum – large and mid-size. While Wipro and TCS ramped up their subsidiary count, mid-size players like 3i Infotech were not left behind as well. Also, as expected, the cost arbitrage factor became less relevant than it was before. Large players aggressively build upon their scale, which is expect to take them to the next phase of growth going forward. Security issues: Taking 2005 as an example, we expected information security to be on the top of the priority lists of managements of Indian IT/ITES companies. It probably was, as there was no serious breach of information security during 2006. The outperformer: MphasiS BFL MphasiS, which had been an underperformer in 2005, largely due to the fact that Barings (its erstwhile largest shareholder) had difficulty in making an exit from the company. EDS picked up its stake in 2006. The acquirer’s (EDS) vast global network in over 50 countries, as well as its strong client base, is expected to help MphasiS broaden its service offerings and leverage the former’s global network to sell to its large clients. Given EDS’ urgent need to strengthen its offshore presence, MphasiS could also witness stronger volume growth, as there is a possibility of the former offshoring a part of its work from existing and new clients. Given better traction in its IT services business and ramping up of the domestic BPO business in order to service orders like the Bharti deal, MphasiS raked in some good performances during 2006, the effect of which was seen in the stock price. [From Internet] Best wishes for the New Year ahead, Suman Mukherjee India. www.3paisa.com www.sumanspeaks.blogspot.com