HCL shows that it’s Infosys that’s in trouble, not Indian IT

HCL’s vice-chairman Vineet Nayar tries to attract new clients
HCL’s vice-chairman Vineet Nayar tries to attract new clients
Image: AP Photo/Michel Euler
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HCL Technologies’ results this morning show just how much markets overreacted last week when Infosys posted disappointing results for the first quarter of the year and lowered its growth forecast for the next financial year. At the time, it seemed as though the slowdown at Infosys—not the biggest but certainly the best known of India’s software outsourcing companies—represented an industry-wide malaise. The company’s shares fell by some 20% and took the benchmark BSE Sensex in Mumbai down with it.

So the relief was palpable when HCL, India’s fourth-largest software firm, posted robust figures today (pdf). Net profit for the three months to the end of March was up 73% from a year earlier to Rs 10.4 billion ($193 million). That follows record profits in the previous quarter. HCL also announced $1 billion worth of new deals signed in the quarter. Ankita Somani, an IT analyst at Mumbai-based Angel Broking, told Quartz that the figures meant that any concerns about the industry could now be shrugged off. Since Indian software firms get most of their business from foreign companies, the numbers also reflect growing momentum in American and European IT markets.

The road ahead is not entirely free of bumps. HCL has tightly controlled its headcount by operating at record-high levels of productivity. Well over 80% of its employees are engaged on a project. By contrast, Infosys hovers around 70%. More “benched” employees, as they’re called, reflect in lower margins but HCL will probably have to hire more people in the coming months to give itself some breathing room. Even so, analysts expect HCL’s growth to continue as its grabs more market share.

Tata Consultancy Services, India’s largest IT-services firm, reports results later today.