A few years back, Infosys was undoubtedly the poster boy of Indian IT. It used to be said that, when Infosys ‘sneezed’, the whole IT sector caught a ‘cold’. If Infosys gave a conservative guidance, it was assumed that the whole IT sector too would give a conservative or a bleak guidance. Today, Infosys is no longer considered the barometer for IT sector performance – the mantle has been comfortably taken over by Tata Consultancy Services (TCS), Asia’s largest IT services company.

So, when analysts first heard that these two warhorses of Indian IT services, were declaring the results together on the same day – it was unprecedented.  The two events probably occurred for the first time in the history. For any industry observer, the contrasting style followed by the two leaders was considerably different, and this was aptly reflected in the guidance.

For example, Infosys, for a change, restrained from giving a forecast for the next quarter indicating the enormous volatility in the market and delays in their customer’s decision making cycle. The commentary from Infosys’ management was low-key and lacked confidence. In contrast, TCS, which traditionally does not make revenue and profit forecast, gave upbeat commentary about the future.    

Infosys’ dollar revenue guidance for the full year ended March 31, 2013 is expected to be at least USD 7.34 billion, a year-on-year growth of 5 percent, down from its April estimate of 8-10 percent growth. Interestingly, Infosys’ guidance of 5 percent is much lower than NASSCOM’S growth estimate of 11-14 percent for the industry in FY 2013. Commenting on the difference in growth projections, Infosys CFO V Balakrishnan said that NASSCOM’S forecast is “ambitious”. On the other hand, TCS management said the company is likely to deliver ahead of the NASSCOM’S guidance if the currency levels do not fluctuate too much.                         

TCS beat street expectations with a 37.7 percent growth in revenue for the first quarter to Rs 14,869 crore. Infosys’s topline for the quarter grew only 28.5 percent annually to Rs 9,616 crore. TCS’ net profit for the quarter ended June 30, 2012 grew 37.4 percent to Rs 3,318 crore as compared to Infosys whose net profit for the quarter grew 32.9 percent to Rs 2,289 crore for the quarter.           

In contrast to SD Shibulal, CEO of Infosys, who talked about volatility and delays in customer decision making, N Chandrasekaran, CEO of TCS said, “We have seen strong, secular growth across all our service lines and industry segments driven by robust volumes from key markets like North America, Europe and UK. We have also absorbed impact of wage hikes and maintained our profitability in a volatile setting.” He added, “Looking ahead, TCS continues to see good demand from global corporations as they successfully navigate an increasingly complex environment. Our investments in new technologies and platforms are bearing fruit with increasing market traction and we are confident of playing a pivotal role in our customers’ future business evolution.”                  

Reacting to the results and given that it failed to meet its dollar revenue guidance, the Infosys scrip fell sharply, tumbling down 8.15 percent to Rs 2265.25 at the BSE on the close of Thursday. TCS, which declared its results after market hours on Thursday, opened on a bullish note on Friday gaining nearly 4 percent during the day to close at Rs 1249.65 on the BSE.                                      

“Despite the rationale given by Infosys for a bad quarterly performance, what is worrying is the FY13 guidance given by them. With this, it is now extremely important to understand as to what is the impact of Infosys 3.0 and what results is it giving. Needless to say, it has definitely impacted employee morale and has set a gloomy mood for the industry,” stated analyst firm Zinnov.

Some other analysts such as Dipen Shah, Head of Research, Kotak Securities, said that TCS’ results were mixed, with its dollar revenues coming in above expectations whereas EBIT (earnings before interest and tax) margins coming in marginally lower than expected. “Average realizations moderated by about 1.3 percent, indicating some pressure from clients and mix change. The management has maintained its optimistic outlook despite the uncertain macro scene and in contrast to cautious comments from Infosys. The comments likely reflect good visibility from large accounts and better execution.”           

During the quarter, Infosys made a net addition of 1,157 employees, while TCS made a net addition of 4,962 employees.  It is also interesting to note that while TCS added just 29 new clients in the quarter ending June, Infosys added 51 new clients in the same quarter. However, a decline in pricing has obviously hurt revenues and margins.

The results of these two top IT firms indicate that while the operating environment remains the same for both the firms, TCS has been able to manage the volatility in a better way.