The prospect of recession in Europe coupled with misses by American retail heavyweights like Target and Walmart in earnings should have Indian IT services firms worried, said Zoho Co-Founder and CEO Sridhar Vembu.
“All of us are dependent on the US and European markets, and it is very concerning when you see recessionary winds and big misses from Walmart, Target and Cisco,” said Vembu, speaking exclusively to CNBC-TV18. “There is caution in the ecosystem that is warranted. We must be careful while minding the store, and keep a watch on our numbers,” he added.
What is probably the most disconcerting feature of the present slowdown, Vembu added, is that there is no definitive estimate of just how long it would last. “Given that the global debt situation is concerning, I expect a prolonged and painful recession,” he said, “But this creates opportunities for those who are nimble and can save customers money.”
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The Zoho boss said he believes that a big opportunity for IT services lies in designing newer and more efficient software platforms.
“There are a lot of legacy platforms that are not only outdated but expensive to run,” he said, adding, “A service company offering to replace these platforms with one that guarantees implementation and migration, and saves a company maintenance burden, would have discovered a growth area.”
Agreeing that new-age Indian tech firms weren’t the only ones in the middle of a valuation bubble, Vembu pointed out how real estate and cryptos were contending with the same issues too. Correction in valuation for these companies, he said, was par for the course.
“You have to focus on profitability — unit profitability and overall profitably,” he said, “It’s no longer appropriate to burn large sums of money as was the case in the last few years. More companies will focus on a return to profitability, or on gaining profitability. Companies will have to accept slower growth but more profitable growth.”
Will the recent valuation bloodbath, though, dissuade companies from listing in public markets? Not necessarily. “Startups which need to provide an exit to their VCs will have to go public at some point,” said Vembu. “But they will achieve profitability and then go public and end up accepting a lower valuation than they would have, a year ago,” he added.
First Published: May 20, 2022 6:53 PM IST
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