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Cognizant filing stokes Indian outsourcer growth fears

Keep Calm and Hold Your Shares: growth will still be around 16 per cent

Internet Security Threat Report 2014

An SEC filing from IT services poster boy Cognizant has sent ripples of uncertainty through the entire Indian tech sector after some interpreted it as a sign the company is expecting slower growth in 2013.

The filing from NASDAQ-listed Cognizant, whose revenues beat those of IT giants Infosys and Wipro in the last quarter, indicated that the firm would pay its top execs 100 per cent of performance linked stock if the firm grows 16 per cent next year.

Although not a formal announcement of 2013 growth expectations, the filing has been interpreted by many commentators as an indicator Cognizant expects slower growth than the 33 per cent it achieved in 2011 and the 23 per cent predicted at the start of 2012, according to Economic Times.

Adding to the potential gloom is the fact that Cognizant has been one of the best performing Indian tech firms in recent history, outpacing the industry by at least 10 per cent over the past four years, according to Forbes.

The firm did little to reassure the markets, in a canned statement sent to ET:

Cognizant's goal is to maintain industry-leading revenue growth ... The revenue target at 100 per cent payout would represent industry-leading growth. Based on the current knowledge of the economic context and business demand, coupled with the discussions we have had with our clients, we think the targets are appropriate.

India’s IT trade body NASSCOM optimistically predicted double-digit growth for the industry in fiscal 2013, although would not elaborate.

While there are certainly jitters in the Indian outsourcing market as Europe’s continued economic slump impacts deals, the big picture is more reassuring.

Gartner analyst Arup Roy told The Reg that the reaction to Cognizant’s filing has been overly dramatic.

“Cognizant has historically been conservative in its outlook and about what it conveys to the market, but in reality they have always delivered far beyond what they say. So a 16 per cent growth in 2013 can safely be interpreted as a 20 per cent at least for Cognizant in 2013,” he added.

“And we must not forget that 16-20 per cent growth for company of that size is quite good given the muted economic situation and thereby the overall industry growth situation.” ®

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