CHENNAI: A lot has been said about the Indian IT industry facing a crisis this year, but analysts pointed out that the industry is still growing, though not at the pace seen earlier. Industry body Nasscom has given a revenue guidance of 11-14% for the year, and companies like TCS, HCL and Cognizant have forecast an outlook of 15-20%.

However, the analysts said it's hard to sustain that growth focusing only on traditional markets like the US and Europe, and money-spinner sectors like financial services and healthcare. Large IT firms like TCS, Cognizant and Infosys earn 80-90% of their revenues in the US and Europe. Financial services vertical accounts for 43% of revenues for TCS and 41% for Cognizant, to give a few examples.
"There are two main reasons (for the slowdown): First, slump in demand from the US and Europe especially from the financial services sector; and second, the continued focus of Indian IT firms on traditional US and Europe markets and not actively exploring emerging markets like China to supplement demand in weaker times," said Kumar Parakala, head of IT advisory at KPMG India. "These IT firms are still growing though it may not be at the rates they promised some time ago."
With a host of major Indian IT firms like Infosys and Wipro missing quarterly targets and giving weak annual guidance, the year has so far not looked very bright. Many hopes were pinned on Cognizant but it also downgraded its annual guidance by three percentage points to 20%. To top it, JP Morgan on Tuesday cut TCS stock to 'neutral' , but that is mainly because of the "stock being fully valued" and not due to any inherent weakness in its business.
Markets reacted sharply to TCS and Cognizant downgrade and the BSE IT index fell 3.09%, while the benchmark sensex fell 2.17%. "I wouldn't read much into these market falls," said Amabarish Dasgupta, executive director of PricewaterhouseCoopers India. "Three to four quarters of weak performance shouldn't do long term damage to IT stocks which have performed quite well for years."
At the same time he said that it was time for restrategizing. "I don't think weak results are a very temporary phenomenon," said Dasgupta. "While companies have many existing contracts, securing very large new contracts definitely seems to be on decline."
Both Parakala and Dasgupta expect weak performance to continue this year. However, they don't expect this to impact hiring in the current year as companies still have many existing contracts and also need to hire for the future.
For the next year, the outlook is cautious. "Once we see the US presidential election out of the way and the European Central Bank's measures showing results, we can expect more optimism next year," said Parakala. "All organizations need to have a relook at their strategy. They need to look at newer markets and verticals to reduce their dependence . There are other locations coming up to compete with us," said Dasgupta.