The Rise & Fall of TCS & Infosys | Future of big Indian IT companies | Infosys Q1 results

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A friend of mine, a senior guy in the IT service industry in Silicon Valley told me that almost all the companies are trying to cut down on their IT costs. This leads to a decrease in revenues of IT service companies like Infosys and TCS. But the salary expectations of folks in the IT industry in India are only increasing. The latest Infosys Q1 results have been a complete disaster. Infosys is not performing well because of all these factors, and worse, their share price reflects the same. The Infosys share price fell by 7% in one day.

Infosys CEO has mentioned that they are expecting a growth of 1-3.5% in the next 1 year. India as per S&P estimates is supposed to grow by 6%. This explains the negative market sentiment regarding Infosys. The IT sector today is going through a massive shift. But why? The answer lies in why the IT service sector propped up in India in the first place. Let’s take Punjab National Bank for example. In the 90s or even early 2000s the banking service system was completely based on paper trail. On paper records of deposits, withdrawals, loans, FD, etc were maintained and peopel had to stand in long queues to access banking services.

But then with the rise of computerized banking systems, all banks had to evolve E-banking or net banking facilities for their customers. But folks working at PNB are not technical experts. They could hire technical experts but that would be time-consuming and expensive. That’s why they thought it was better to outsource the technical requirements to IT service companies like TCS and Infosys. But the majority of TCS & Infosys customers are in Western developed markets. Could the companies in Western developed economies not find any other service provider to do the same job as TCS or Infosys does? Of course, they could but Indian IT service companies like TCS said that they could do it cheaper. Because the cost of labor was cheaper in India.

Because the services offered by TCS & Infosys were cost-effective, they started getting clients from across the world. This shows the competitive advantage for TCS & Infosys was not in what their intelligence or expertise but in cost-effectiveness. This needs to be understood because this became the reason for their downfall too. The first reason for this is that there are small IT companies that are propping up all across India. These small companies say that they can do the same job as TCS and Infosys but at a much cheaper cost.
The second reason is the rise of automation in IT. All the things that were done by TCS, Infosys, and the likes in the past are getting automated these days. This is the role of AI coming into the picture. Now over time, the role of AI in IT will keep increasing and thus the share of Infosys & TCS in the IT services space will decrease. Topaz an AI platform launched by Infosys has gained 8 clients, and these clients have basically come off from other projects. This is why the IT sector is going through a massive change and in the future more IT jobs will reduce

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Chapters

0:00 - Intro
0:22 - Infosys Q1 Results
1:28 - Rise of India’s IT sector
3:24 - Fall of India’s IT sector
4:28 - AI Automation
7:43 - Outro

[ravib]

Boss I was hearing the same story since day one (last 20 years)...nothing will happen...its just a fear but market will go up for infoy and tcs etc....
Cheap labour is required in software like we need a maid at home.
Maid has fear that washing machine, dishwasher, Zomato, AI, robo came and insecurity increased for maid....nice joke.
Over analysis is paralysis.

[myselfshrikantkale]

1. After a decades of experience why there is not a single product?
2. Where is the specialization ? Hire a civil engineer and juice it out IT of it !
3. Stop being greedy for God sake by paying very very very little....!!!

[cinder]

I am in cognizant and its state is worse than all IT companies
mass layoffs and no projects
even higher management got fired along with Ceo replacement
directors and managers are themselves admitting that lack of projects is a big worry now😢

[nikhildays]

The crux of the problem isn't that there are other smaller IT companies that can do it for cheaper, rather the business model = cheap labor, is becoming obsolete. Companies in US / Europe may be cutting costs, but that is just a temporary thing as recessionary fears loom in the horizon, but it is something that will pass in due course. The problem that the Indian offshore companies have not been able to let go of is that the cheap labor is now synonymous with poor quality. Sure, you can get a QA tester or a Java developer for $25/hr, bill him / her to a client for $40 and make your margins, but client now know what $40/hr is going to get them - a subpar service. And no matter how many $25/hr people you put on the project, the quality remains the same.

[InfinityTalentGroup]

Great information and you are a legend. Thank you.

[amoghkolhapure]

Insightful.. Keep making videos on such topics.

[mandalorian]

The thing is more and more businesses would develop in-house development teams rather than outsourcing. So the push for youngsters should be to move to product or captive firms rather than sticking to IT Services or consulting firms for long.

[kingOfTheAscetics]

Thanks for the great videos @Pavan Sathiraju! It is a great learning experience!

[sunilkumarmt]

Hi Pavan, Thanks for the video. It's an eye opener in terms of the situation for IT services firms.
Please make more such videos.
Please make videos on adoption of AI in different sectors and domains like healthcare, software development, customer service, maintenance etc. Include AI tools also that are being used.

[meetmycoach]

Companies like Infy or TCS have reached a certain economy of scale, they are cash rich and they qualify for certain projects where no other vendor with less than $1BN is allowed to bid. They have moved from the body shopping mode to complete outsourcing. They will face challenges with advance AI coming in and low end jobs like testing etc. vanishing

[RajatRajgaria]

Loved this. One of major points you missed is SAAS. Business models on which IT services companies used to thrive itself is changing. With SAAS, maintenance cost is 0 for enterprises inturn no play of IT services companies

[ps]

like some others have said. Bigger firms like tcs/infosys will adapt and evolve. The IT market will reduce in size. but other technilogies/systems will emerge and take their place. Nature does not like vaccum.

[jonron]

I would say the advantage is not only cost. These big companies have the ability to influence powerful people to give them a preferential treatement. For instance Infy in Australis has been accused of psuedo bribing government through a "lobbying" firm while paying the lobbying firm millions of dollars for non justifiable work. While this particular case is still in court and investigations are on, it shows that the large companies have a way of getting the projects.
What is to be seen is how the smaller companies can build this influence.

[SHIVAMPANDEYSJTG]

I remember I gave my resignation after 2 year of joining as a fresher as I felt I am heavily underpaid. An HR in the company was like we are paying you such a high amount 😆. Is it slavery for 8 9 lpa they ask to work us 12 15 hours a day even on weekends. Idk why I joined tcs its better to not work at all and starve to death than to work at such places.

[gmsubu]

IT industry will always survive through innovation. TCS, Infosys etc have numerous advantsges due to their size and scale of operations. Their unit cost per employee is lower than a small size company. You need to constantly upgrade and adapt skill sets as per the lstest technological trends. IT will pass through recession but will always bounce back in the long run.

[svraidu]

Hi Pavan, big picture of s/w industry you explained is 100% accurate, but here in India most Of the industry Sr management thinks hire a fresher and train him for couple of week and we can fire the experienced engineers, I have lot of questions and it really scares me. I wan to know how I can compete with this challenges

[xxxx-tbde]

You have valid points but large IT service companies like TCS and Infosys also have options. They know cost is the key. It is not too hard for them to reduce the cost by cutting employees, reduce building/benefits, automation etc.

[souptikchatterjee]

New area of work is AI, Indian it industry will adopt this quickly.
In coming 1 year indian it companies will see another boom of project.

[NikNeedsToStudy-fbgr]

If you said this when US tech market was hot, I would have agreed with your points. However, US tech market is not hot now. The slow growth in Indian consultancies could be the result of it rather than the points you have mentioned.

[Guidewire_Enthusiast_Vinay]

Perfect explanation of the IT's current landscape and ongoing scenario.