Big brothers leading the way; Happiest Minds seeing growth in the market: MD

Venkatraman Narayanan, MD & CFO and Joseph Anantharaju, CEO, Happiest Minds Tech, in conversation with ET Now.

Talk about this latest survey that we have got from JP Morgan and this is a global CIO survey that the guys have done and they are saying that there will be cuts in IT spend budgets by 1-2% in real terms. Industry leaders like Infosys, TCS have been saying that there is no slowdown in demand. Help us to bridge this dichotomy that we are getting in terms of the commentary. What kind of demand momentum are you seeing on the ground?
I would like to quickly go into certain aspects of the report. I have had an opportunity to go through it. They are talking about a slowdown of about 1-2% in real terms whereas in nominal terms, they are still holding out a growth of about 6-7%.

If you dive down deep into the report, you will see they are talking about looking at a percentage of confidence index. About 60% of the CIOs surveyed are positive to be maybe lower on the positive side. The report or the trend of the report is rather positive rather than negative.

Whereas if you go a little deeper looking into the commentary of the report, they are not really dividing their comments on the basis of digital spend, discretionary spend and traditional IT spend. The Indian IT industry is about $200 billion and the globally could be close to a trillion dollars. We have not yet started dividing the market in that kind of finer pieces of what is traditional, what is discretionary and what is digital and then looking at the growth among those.

In the absence of such micro data, I would rather look at what a large company like Accenture has reported. They seem to have reported very steady growth numbers and which is what the larger peers like Infosys and Wipro seem to be also echoing from the Indian standpoint. We have got our big brothers, they are leading the way. We are a midsized IT company focussing purely on digital. We are seeing growth out there in the market.

Talk to us about your business, your discussion with your clients. Is there any slowdown or any delaying decision making? Is there any underlying trend in that growth story that we are talking about which might slow down or derail the sector a tad bit?
So far we have not seen any big decisions being taken in terms of reducing spend but we are seeing three things; one is customers are prioritising their projects or their initiatives and moving money to the ones that have higher priority or higher business impact and most of these tend to be digital initiatives and that is the reason why we have not seen much of this happening.

When they do cut down on one initiative, they immediately move the budget to another initiative. The other thing that we are seeing is the customers trying to rationalise some of the existing assets and technologies that they have instead of trying to build. If things were fine, they would have tried to build newer technologies. They try to see if there is something within the ecosystem that they have that with some work can serve the purpose. That is what we are seeing so far.

The third thing we are seeing is customers who have an engineering or IT presence in some of the countries where there are challenges like Sri Lanka or Russia/Ukraine, are also having to make decisions and that is leading to some demand that we are seeing in the market.

You are saying that maybe the fear of recession in the US will not be all bad news. We have also talked about the deal pipeline and valuing quality over quantity. Will you be able to sustain this kind of pricing in the current recessionary environment or could there be an impact?
Sometime in Q3 of our year, that is October to December, we have made a very concerted and planned effort to go back to our customers to discuss the initial signs of inflation, the kind of salary jumps or increases that we are seeing in the market, both here as well as in US.

Over a period, in Q3 and Q4, most of our customers get a price increase and the reason we want to do that earlier rather than later is just to make sure that we do not get stuck with some situation like this. So far, we have not seen any customer coming back or even bringing up rates as an issue because there is still a huge demand for talent both in the US, in Europe and in India.

In the US, we continue to see higher salaries being sustained and in fact continuing to increase. So, we have not seen any rate pressure so far and we do not expect to see anything currently.

All of you in your sector, not just in India but everywhere, have been facing high attrition and an absolute insanity when it comes to wage inflation and the kind of perks that have to be handed out. How is that panning out?
Wage inflation has picked up big time in the US but as of now, only about 5% of our people are in the US, 95% are in India. So to that extent, the effect of that has been relatively muted. The inflation in India obviously has had its effect on us which you can see in attrition. We were at about 22% last quarter on a trailing 12-month basis. But even at 22%, we are significantly below most of the other larger comparable Indian IT peers or even larger companies. Right now, all this talk about the demand getting tempered a little bit in Q3 and Q4 of our financial year is also beginning to have its effect on employees because they pick up signals a lot more. Maybe that would have a soothing effect on the attrition and that is what I expect. I have been always saying that we are likely to see one more quarter of pickup on the attrition number which will increase before things start to stabilise. That has been my take on it but my guess is as good as yours.

Just to make one point on pricing which Joseph mentioned, if you look at it, 95% of our work is offshore and to a great extent, the way the rupee has depreciated by about 4-5% over the last one year is helping.

Similarly, in an inflationary situation, work tends to get off-shored or outsourced and so to that extent, my view is we stand to gain as an economy and as geography when there is a little bit of off-shoring thoughts in the customers’ minds.