TCS Profit Warning - Indicating all is Not Well in IT Sector

Recently TCS came out the profit warning and sent out shock waves across investor community. TCS is known for meeting profit forecast or beating it. Even though TCS tried to deflect the severity of the situation by pointing out that one or two sectors are performing below expectations.

We all should know that multi billion $ IT contract is under renewal which Indian IT companies are managing or developing. The competitor landscape changed completely in the 5 years and it is expected that clients will go for renegotiation on servicing price point.

Recently Infosys shocked the market with an announcement that they lost one of the contract worth $200 MN. We as an investor should be ready to digest more negative news from IT companies.Needless to say that the change in market dynamic and continuous pressure on TCS Profit margin is going to led slow resource hiring or recalibration of existing resources or layoff. It will be having cascading impact on smaller IT companies. At the same time Startup ecosystem is also facing funding issue and layoff is on the rise. 

In my point of view, Indian IT giant should transform their business and should be more focused to come out with their own products. The resources associated with these IT giants are superb in potentials and managed many complex project. If IT giant decide to come out with sector specific product line then only they will be able to sustain their growth. Sitting on multi billion $ cash, I don't think that they need to raise money to develop product. 

Recent announcement is just the warning bell and still it's not late for IT giant to change their strategy to become product, platform company

Why Indian IT Giant should enter into Mobile Application Market place

As we all know that India is the place of Information Technology and global firms opinion is simple- "Indian Software engineers can do anything". Indian IT companies design to manages complex systems world over and are very competitive. The global economic glut even created more opportunity for Indian IT firms given their competitive pricing power. The global serving companies also adopted Indian IT firms approach and now price war situation is in the marketplace during new contract or renewal of contract.

Last three years global IT environment changed wherein startup's started taking the center stage with tons of funding by PE, VC or Hedge fund and attracted the best mind of the IT industry. The change in dynamics increased the attrition rate in IT industry especially in India. It impacted Indian firm in training, retraining and retaining cost and ultimately started impacting their margin.

In my point of view, most of the Indian IT firm are cash rich with number of resources sitting on bench. Indian IT firms should open startup business unit and start developing their own services or platform or application covering both B2C and B2B segment.

Down the line, post successful adoption of product line from Startup business unit across global level given their current reach, they can easily transfer those product line and get the valuations. In my point of view, they can reduce the risk factor attached with current  or future IT spending and at the same time create value for their shareholders.