1. Some IT companies are doing some work in Product Engineering Services but that is less than 10% of its revenue. Again, that is not R&D expense being done to come out with new products, rather work along with Client R&D and there also, a good portion, to supply people to augment R&D projects being envisioned, directed, managed by clients. What is the next generation R&D product Wipro is likely to come out with in the next 12 months on its own? If it is for the client then Wipro does not get any benefit. None. Infy is not even there as a leader even amongst contractors in PES space.

2. Mobile Wallet project given by airtel is a small project. I will indeed be happy if Indian IT gets the entire software including systems and core apps in one mobile phone, be it Windows or apple or android. But I feel sad that that may not happen.

2. The R&D Labs, formed with much fanfare, has become only a show piece. The % expense & % number on people in R&D Lab is only decreasing compared to 2005. Today, it is a good thing to talk to clients about it but nothing really comes out of it that can be sold/implemented across wider client base. After 4000 man years of Labs in one company, tell me one product that you have heard of in the market place? It is some sort of glorified bench rather.   Opto Circuit may be doing much better research IT and Medical assisted devices.

3. We read yesterday, 67% people on billable assignments. 33% completely idle. Which company can afford 40,000 + people on bench. The instagram sale to facebook for $1 billion had 13 employees.

For a moment imagine that there is no arbitrage in US dollar being. Will we do this business? It did not make much commercial sense from 1984-1997 except for entrepreneurial mindset and "kuch karna hai attitude". Plus it was ability to work from offshore and charge US dollars that made huge growth from 1998-2007. This decade is over. And so is mindset.


We can go on and on. But to talk in a public forum without knowing who is talking to whom, may not be of much use.

Well, if you trust me, I have discussed these concerns with senior managements of most of the companies and they KNOW it. It is some sort of rut. If this was not Q-o-Q reporting, many of these would have done something extraordinary. I agree, some of these folks are truly extra-ordinary thinkers, great leaders, but their hand and legs are tied because so called investors like me want immediate gratification and not wait for 3-5 years.

To cut a long story short, there will be not much difference in Mafoi, TeamLease and IT companies in 5 years. None wants to change their business model calculating revenue, based on billing hours, though they do talk. HCL Tech is trying to do something in Infra space. Let us wait and see.

They may not die, agree, but I do not see any money for investors. Please see that per dollar revenue has not increased much or at all in 15 years but average salaries have gone by by at least 4-5 times. This 23% margin is only going to contract, my dear friend.

Disclaimer - No stock in any Indian IT companies or Opto Circuit.

Edited by vasantcool - 14/Apr/2012 at 9:46am

AmeyDesai,

The days of Indian BPOs.... Have fun (as an investor) while it lasts. Eclerx had a great model but they do not have great Sales Force. Buying this media BPO will make them bleed.

GenPact is sincerely trying to change the business model, bringing IT tools and value adds. The problem is their client number 1, GE. GE is best when it comes to outsource. If Genpact saves some money, GE wants most of it. Also GE threatens to diversify their vendor base and Genpact cannot afford it. Most of the GE contracts are due for renewal, forcing Genpact to work harder. But Genpact, as it seems to me, are trying to be different and may succeed.

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