Changing Times for IT Services

The last twelve months have been ugly for IT Services stocks. As an industry it was probably the worst performing industry in the Indian stock market. The chart below of Infosys vs. Sensex makes the point better than I can ever describe it.

sensex, infosys
Source: Bloomberg.com

Going by last year’s results for the bigger players, this deep dive was not quite deserved.

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Thomas Weisel Shutters Discovery Research

Last week Thomas Weisel Partners announced that it is shutting down its small cap research offering, Discovery Research. The 8-K filing says

Thomas Weisel Partners Group, Inc. (“Registrant”) announced today that it would discontinue its Discovery Research coverage of U.S. equities. That coverage is being discontinued as a result of the recruitment of key Discovery Research personnel to BNP Paribas Securities (Asia) Limited, a BNP Paribas affiliate. Thomas Weisel Partners is pursuing its legal remedies in connection with these departures. Discovery Research, a subscription-based research product, was produced out of Thomas Weisel Partners’ office in Mumbai, India. Thomas Weisel Partners intends to continue to conduct other business and operations through its Mumbai, India office.

There are two different reasons why I find this news interesting.

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How Will IT Services Fare in the Coming US Recession

Most commentators put a high probability on the US going into a recession. What began with a problem of imprudent housing loans in the US has snow balled into a crisis for the Financial Services industry and an almost certain slowdown in consumer spending. How this impacts the Indian IT Services industry requires some analysis.

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Indian IT Services – Right Turn Ahead

Is the Indian IT Services party over? Is a decade of growth and wealth creation coming to an end? And if that is so, what can we read in the tea leaves.

There are three fundamental reasons why the IT Services industry finds itself in a challenging environment. One, the dollar-rupee rate. Two, wage growth. And three, slower revenue growth.

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The H1-B visa program needs a revamp

This year the INS received 150,000 H1-B visa applications for the coming year starting in October, on the first day that it started accepting applications – for a total of 65,000 visas! An article in the New York Times takes a look at the issues surrounding this. A table from the same article reproduced below gives you the breakup of the visas requested by company. Indian IT Services companies are the only companies at the top of the list.

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Offshore Backlash Redux

It’s back. With the Democrats in Congress and soon perhaps in the Whitehouse and an economy that most think will turn sour soon, it is almost the perfect storm. Trade in services, fondly called “offshoring” is back on the front pages and it bodes ill for global business.

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Platform BPO

A few years ago, I wrote a piece on Rediff titled “Who Needs Software Products”. The Rediff business editor at that time added “…Services are Prime” to the title and totally took the punch out of it, but that’s a different matter (one of the reasons I decided to do my own blog!)

Anyway, in that article I posited the following:

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A Tale of Two Techies

Taking up from where I left off last week. Based upon the analysis it appears that the dramatic growth in the IT Services industry in India is the primary force in shaping the Indian techie. The Indian techie is a bright person who did well in college, but even after a few years in the industry, is low on technical depth. Before he can really sink his teeth into something, he is pulled into project management. Not because Indians or Indian companies don’t care about technical depth, but because if they have to meet demand and grow, they have no choice. And to paraphrase Gordon Gekko in the movie Wall Street – Growth is good.

A study in contrasts is that other techie – the American techie.

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