The top IT services companies have been around for a few decades but, for all practical purposes, they came into being around Y2K, when the world took notice of the Indian technological prowess. Since that historic turning point, the industry has zoomed from under $2 billion in 2000 to $70 billion in 2012. While that growth trajectory continues, albeit at slower rates, there is something amiss.
Bellwethers Infosys and Wipro face fresh challenges, Tata Consultancy Services (TCS) has marched ahead and HCL, which looked like an also-ran prior to 2008, has risen like a phoenix. The gap between TCS and No. 2 Infosys has widened from $1 billion three years ago to more than $3 billion today. Infosys slipped to the No. 3 slot in the pecking order, with Cognizant overtaking Wipro in 2011 and Infosys exactly a year later, in the June quarter.
If Y2K was the sector's baby steps that hurled IT companies into a hyper-growth orbit, now they are finding it difficult to cope with uncertain market conditions. There are divergent commentaries: Infosys 5% growth, TCS set to beat Nasscom guidance of 11-14% growth for the year, Cognizant and HCL clocking double-digit growth. HCL, Cognizant and TCS have won more new business in the last 10 quarters than rivals. And the mid-tier, the likes of Hexaware and KPIT Cummins, are growing much like the large-tier did a decade ago.
This is in contrast to the pre-2010 period when the large companies - excess of $4-billion revenue today - grew at an average of 22-24% a year. That period saw the industry zoom on the back of labour-intensive tasks, such as applications development and maintenance and remote infrastructure management. It was the low-hanging fruit that Indian IT went for and what looked like hi-tech then is commodity business today.
Today, global technology buyers - from Fortune 500 firms spanning GE, Bank of America and Nissan to mid-tier firms across the world - are looking at new applications faster than most people change mobile phones. Typical IT cycles have shrunk from 5-7 years to six months. For example, UK-based retailer Tesco had a single buying system globally, on mainframes - in the last couple of years, it has dismantled that and built country-specific systems, say, for buying from Poland and China. There's turbulence in the market.
Companies like HCL Technologies credit this disruption for their growth: contracts came up for renewal and they have grabbed the opportunity with both hands. Global outsourcing tracker Information Services Group says 686 outsourcing IT deals with a value of at least $25 million or more are due to expire in 2012 alone. Most of them are being renegotiated at lower rates, putting pressure on margins - unattractive for some (like Infosys) but attractive for others (like HCL).

According to research firm Gartner, global IT spend grew by 15.26% between 2005 and 2008 and at a lower 13% between 2008 and 2012. With global spends ebbing, companies have been eating into each other's market share for gains.
The performance of TCS, HCL and Cognizant looks better when compared to Infosys and Wipro. But this is more due to short-term gains, such as winning business on contract renewals. Overall, the $70-billion industry will have to overcome this period of inertia if it has to return to stellar growth. Even those that gained in the slowdown - like HCL and Cognizant - need to look at new growth engines.
Indian IT has traditionally had high exposure to verticals that are stressed today - banking, retail and telecom - rather than those that are less stressed - manufacturing, auto and healthcare. For instance, post-2008 has seen spends on banking systems stagnate or decline, particularly in areas of capital markets and investment banking.
The way customers are buying technology is changing: for instance, travel, hospitality, banks and retail chains are looking at a combination of mobile, cloud and big-data analytics services.
Banks need new software applications every six to nine months, retailers want to buy systems that can sync with both online and offline worlds, helping customers buy on mobile, tablets and physical stores with equal ease. Indian IT is confused on what to bet on.
This decision becomes tougher in a challenged market environment, where IT spending is tight and given the scale at which companies are - neither too small to change path quickly nor too big to take on IBMs and Accentures. IBM can throw in a few billion dollars just to give proof of concept in, say, smart, networked cities and showcase it to buyers from Mumbai to Manhattan. Infosys, Wipro and TCS can't afford that investment. Neither can those that have ostensibly gained in recent years - HCL and Cognizant.
The first $6 billion to $10 billion was an easy run rate to clock. Now they need the savviness much like the software they help global companies run on, to identify areas they want to chase and create new markets for themselves to grow.