Are Indian outsourcing company stocks priced too high ?
SOURCE: Barrons
DATE: March 8th, 2010
The Indian based outsourcing vendor stocks have done fairly well in the last few years. Shares of Infosys, Wipro are up by 300% since their lows in 2008. Some of the other shares like Genpact which has been stuck have seen upward momentum and have had a nice jump in the last year. Currently Wipro trades at 34 times the earning, TCS at 22 times and Infosys at 26 times.
The mid size firms like iGate, Mastek have seen the recovery coming back although at a slower pace. Their is the concern expressed about protectionism, weakeness in European economies and lack of job growth in the West as possible concerns why the outsourcing market may be in for a slower growth in the near future.
We think that the outsourcing marketplace is going to continue to grow but the growth rate for larger firms and others is going to be divergent. Where larger firms are going to see a continued growth at a steady pace ( although not the pre crash days) as they leverage their economies of scale and companies are comfortable with the name brands. These are firms like Infosys, TCS, Wipro. Wipro e.g. is diversifying into other non conventional area likes energy, consumer goods, defence.
Smaller or Mid size firms growth rate may be less than the larger firms as these firms figure out how to either build a niche to grow, survive. These firms are going to be benefit more by the tail end of the recovery than the larger firms whose clients typically larger organizations start loosening their purses earlier. Where these smaller and mid size firms might see a growth opportunity is if the adoption of cloud computing expands the outsourcing/offshoring marketplace to participants which could not leverage this earlier. Namely the smaller and mid size firms in the US or the west. Cloud computing though may not be all beneficial to the outsourcing firms as moving to cloud might be a more viable option to save costs vs leveraging offshoring.
Good news is that for companies looking to leverage outsourcing it is a buyers market. The bad news is that making the right decision with the changing pace of marketplace, new technologies and outsourcing vendors changing their models is a tough call. That is where we can leverage our experience to help you create the right roadmap and help you navigate the path.
Mohit Sharma is the CEO of Corrystone Global Partners. Corrystone is a specialized globalization firm providing advisory, education and staffing services to firms in US and India. We work with firms in the US which are exploring low cost options for IT, Business Process work and looking at ways to further optimize cost and manage operational risk. For firms based in India we help with marketing presence , M&A & client management services in the US. Contact us at info@corrystone.com to learn more about how we could help you.
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