“Give us back the money!” – Outsourcing Investors Call to Arms

“Give us back the money!” – Outsourcing Investors Call to Arms

2nd August 2011- Around the world investors are decrying the misconduct, poor governance, blatant dishonesty and the poor decisions of bankers, politicians and governments. Investors are seeking ways to reclaim assets that were frittered away. Why then is there only mute silence when there is a category of industry sitting on a cash mountain of at least $6Bn and has done for more than three years. Stranger still, no shareholder seems to be screaming at the executive board to return these monies to the rightful owners – the shareholders! Welcome to the particular and peculiar world of Indian Offshore Outsourcers and the likes of TCS, Wipro, HCL and Infosys

In the days when Indian providers were only quoted on their local exchanges they used to have a totally different investor profile to western listed companies with literally millions of small investors with most of their life savings in less than $500 shareholdings. These minor shareholders benefited from a decade or more of unprecedented growth but remain largely ill-informed, uncoordinated and non-militant. However today, with dual US and Indian stock exchange listings and large institutional investor holdings, they still appear unrepresented.US investors however are used to flexing their “shareholder rights” to challenge board decisions and strategies. .

So again the question, why the silence? Is it the fabled “we are going to need the monies for large acquisitions” statement? There are many acquisitions but thay never exceed ‘small change’ and are always in niche and integratable software provision. Why would any western shareholders remain silent about the ineffective use of $billions sitting around year after year awaiting … awaiting what? A decision Mr Chairman – that’s what we are waiting for.

Strong, sometimes still largely family controlled multi-billion dollar service companies without such shareholder pressures has led to complacency and a lack of innovation, financial or otherwise. In the worst case even fraud, such as the billion dollar fraud carried out by India’s Madoff, Ramalingam Raju, the chairman of IT outsourcing company Satyam Computer Services for over-stating the company’s cash reserves were over $1Bn in January 2010, when they were a mere $66m.

With several informed analysts including the powerful CLSA “downgrading sector recommendations for Indian IT from Neutral to Underweight as we watch the margin of safety in Indian IT stocks recede (27th July 2011)”. Their report went on to say “Indian IT holds little promise of sustainable absolute returns hereon. We are downgrading TCS and Infosys to Underperform and have no positive ratings in the sector now”.It now not the time for all Indian investors of whatever holding to rise up and shout in unison, “Give us back the money!”

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