Sell-Side Research Community: Mumbai’s sell-side research community is known for its politeness, but is it obscuring the truth? Analysts tend to avoid harsh words in favor of more painless alternatives. However, this tactful approach can have consequences, as was evident six years ago in the banking sector, and now, it’s brewing in outsourcing.
The Impact of Language Decline on Politics and Economics
Sell-Side Research Community: George Orwell’s insight that the decline of language has political and economic causes holds true in India’s stockbroking sector. When large Indian outsourcing companies face challenges, they don’t say sales and profits have declined; instead, they talk about them “degrowing.” Similarly, a shrinking workforce is described as the “addition of employees turning negative.”
The Art of Presenting News: Good, Bad, and Jargon
The motto is clear: Present good news boldly in plain English, and then, cautiously introduce the bad news, often obscured with jargon. This approach can be likened to the Monty Python sketch with the parrot that’s “resting, pining for the fjords.”
Navigating a Sell Rating without Offending
Sell-Side Research Community: Putting a sell rating on a reputable Indian outsourcing firm without upsetting the CEO requires finesse. Start by highlighting record orders. If sales fall short despite a promising business pipeline, there are two options: spin the book-to-bill ratio as a future windfall or allude to a “revenue leak,” which implies a robust global economy.
The Perils of Playing Nice: The Banking Industry Example
Playing nice can be a serious handicap. In the past, banking analysts in India missed deteriorating asset quality by dismissing credit issues as “the last cockroach.” The consequences were severe, leading to India’s bad-loan problem.
Outsourcing Firms’ Elevated Price-to-Truth Ratio
Now, it’s the outsourcing firms that face scrutiny, particularly their elevated price-to-truth ratio. Unlike leverage issues, their problem lies in the quality of orders. Earnings calls are starting to discuss the growing gap between contract values and lackluster sales.
Worker Concerns: Declining Payrolls
Sell-Side Research Community, While contract value discrepancies are being addressed, the declining payrolls are a growing concern. The top players in the outsourcing industry cut their payrolls by more than 21,000 in three months, the worst in over five years. This might be a correction after a post-pandemic hiring boom, but it could also reflect caution among US and European multinationals regarding slowing economies.
The Broader Impact on the Economy and Elections
Anodyne language, such as “negative net addition,” doesn’t serve the core audience well. Code-writing work is a barometer of white-collar employment in India, influencing everything from middle-class homebuying to consumer spending. It could even impact voting choices, particularly in urban areas, in the upcoming general elections. Investors need to assess how much of the downturn is due to temporary order flow uncertainty and how much is becoming a lasting trend.
The Enigma of Indian Offshoring Giants
From an outsider’s perspective, it’s challenging to discern the true extent of the issue. Major Indian offshoring companies like Tata Consultancy Services, Infosys, Wipro, and HCL Technologies have hired a substantial number of engineering graduates in recent years. However, indications that they won’t visit campuses this year suggest a shift in hiring strategies. The industry is also adopting generative artificial intelligence tools to boost productivity, potentially reducing entry-level programming jobs. Youngsters should consider acquiring additional skills to enhance their employability in this changing landscape. It’s vital to inform them while they’re still in the early stages of their career planning.