FOR the $150bn information technology sector in India, these are among the most challenging days in recent years. An industry that was used to witness record growth levels — 25-35pc annually — is now seeing single-digit growth rates and rapidly diminishing markets.

All top Indian IT companies, including TCS Ltd, Infosys, Wipro, and US-based Cognizant are battling it out for a shrinking share of the market, even as customers around the globe are slashing their budgets.

And investors, who had over the years ratcheted the prices of IT stocks, have begun panicking, dumping shares of favourite companies. This month, for instance, the five top IT companies lost more than Rs350bn in market value after companies began portraying a bleak future.

Tata group giant TCS Ltd, the largest IT company, saw a hefty Rs250bn loss in market capitalisation after the company warned about the performance of its crucial banking, financial services and insurance (BFSI) division.

TCS has the largest exposure to BFSI, which accounts for more than 40pc of its revenues. For Infosys, Wipro and HCL Tech, it ranges between 25-27pc. Infosys lost almost Rs40bn in market capitalisation earlier this month, while Wipro (Rs20bn), HCL Technologies (Rs18.83bn) and Tech Mahindra (Rs11.94bn) also lost substantially in market capitalisation.

The Tata IT flagship was the second IT company to come out with a warning about the current quarter. Mindtree, another leading IT player, had earlier warned of a squeeze on profits and had also lowered its revenue guidance for the second quarter following cancellation of orders and currency movement.

“Based on the data at the end of August 2016, the company has characterised customer outlook as one marked by ‘abundant caution’, with some holding back of discretionary spending — particularly BFSI vertical in the US — resulting in sequential loss of momentum,” TCS informed the stock markets recently. It said it was expecting a ‘sequential loss of momentum’ with clients in the BFSI segment putting on hold discretionary spending.

Analysts are expecting the company’s revenue growth to trickle down to 1-2pc for the quarter ending September, as against a more than 3pc growth in the previous fiscal. Indian IT and software services companies had for years been used to growth rates of 20-30pc or even more.

For the Tata group IT flagship, the US is its single biggest market, accounting for more than 50pc of its revenues. Analysts believe that the company has little margin of safety, with its dependence on H1 visas. “Even if the company posts 3pc revenue growth in Q2FY17, it will require 1pc CQGR to clock even 8.5pc revenue growth in FY17,” says an analysis by Edelweiss Securities. “We continue to believe that even though TCS may post Q2 revenue growth in line with Infosys, its EPS growth will be lower due to extremely limited margin levers.”

OTHER top IT players have also been disappointing investors with their lacklustre performance. Infosys slashed its annual revenue forecast by 150 basis points (at the top end) and 100 bps (at the lower end). It has slashed revenue growth to between 10.5pc and 12pc, as against 11.5pc and 13.5pc at the beginning of the fiscal.

Analysts expect the company to take a hit in Europe, where Brexit has started impacting demand for IT services from India. Major Indian IT services including RBS, UBS, Deutsche Bank, Lloyds, Credit Suisse and Barclays are among the ones expected to slash investments in the sector. Infosys has already announced the cancellation of a contract with RBS as a fallout to Brexit.

Infosys and Cognizant have already slashed their dollar revenue guidance twice this year. Cognizant cut its revenue growth target for the year, slashing it to 8.45pc to 9.5pc, the lowest ever.

Surprisingly, Infosys had earlier in the year projected an upbeat forecast for 2016-17, with a growth rate of 11.5pc and 13.5pc. But recently, the Bangalore-headquartered company slashed the growth projection to between 10.5-12pc, following dismal performance in the first quarter of the fiscal.

Vishal Sikka, the US-based CEO, Infosys, expressed surprise at the unanticipated and unexpected 2.2pc marginal increase in revenues for the quarter ending June.

Other IT majors have also been reporting unimpressive growth rates. Wipro, another Bangalore-based major, saw its dollar revenues grow by a mere 2.6pc, while net profit fell by 10pc. Cognizant slashed revenue growth for the full year to 8.5pc to 9.5pc, the lowest in 20 years. Indeed, none of the half a dozen major software exporters could manage double-digit dollar growth in revenues.

Nasscom, the industry lobby, had predicted a 10-12pc growth for the outsourcing business in the country, but none of the leading players are anywhere close to achieving this level.

The lacklustre performance of the industry is having its impact on recruitment as well. IT majors are cutting down recruitments and also keeping a watch on remuneration. Most leading firms are becoming selective while recruiting from campuses, unlike in the past when they were quite liberal.

HR heads in IT companies claim that entry-level salaries are likely to remain stagnant or even come down over the coming months as they became wary about returns. Indeed, entry-level salaries have been stagnating for the past decade and are in the range of Rs300,000-350,000 per annum.

The IT industry currently employs over 3m people, including a third of whom are women. But campus recruitments have slowed down considerably in recent months.

Top executives of IT companies urge students to learn new technologies if they want to be recruited by companies; these include new programming languages including Swift and Python, besides being familiar with digital technologies.

Published in Dawn, Business & Finance weekly, September 19th, 2016