Leaving behind the uncertainty following large scale layoffs, India’s IT sector is slowly recovering its lost ground. The National Association of Software and Solutions Companies (Nasscom) has projected a revenue growth of 7-9% for the IT and BPO industry in 2018-19 notwithstanding global uncertainties and headwinds. The industry has recorded an estimated 7.8% revenue growth in 2017-18.
According to Nasscom president R.Chandrashekhar, the short-term prognosis for the global economy is good; US economy is doing well, which usually translates into greater IT spending. This would lead to higher export earnings for Indian IT industry. Export earnings are estimated to grow by 8.7% to $137 billion in 2018-19 from $126 billion in 2017-18. The overall IT-BPO industry size would be adding $14-16 billion, according to Nasscom.
Chandrashekhar has, however, appeared cautious and said that ‘old challenges’ continue and none of them have disappeared, some of them may have abated, while some others may have reduced in their magnitude of impact.
The industry is at the crusp of major transformation due to proliferation of advanced digital technologies like business analytics, cloud, mobility, internet of things (IoT), security, artificial intelligence (AI), machine learning and robotic process automation (RPA).
This has shifted market spent; the spending on digital platforms is increasing with a major focus on all these technologies while the spending on traditional IT services is declining. This would provide an opportunity of a different kind but would leave many of the present hands redundant.
Global upswing in economic activities and increasing digital spending define the next phase of growth for software industry, according to Nasscom. Digital revenue share in total revenue have been increasing consistently accounting for nearly a fourth of the total revenue last year. This indicates that the digital has become the topmost agenda for both the industry and customers.
The global digital transformation market size is expected to rise at a CAGR of 18.56% from $ 1.2 trillion in 2017 to $2 trillion in 2020, according Nasscom report. India’s IT industry is increasingly focusing on digital opportunities as digital is poised to be a major segment in the next few years. It is also currently the fastest growing segment, growing over 30% annually.
Export revenue from digital segment already accounts for about one fifth of the industry’s total export revenue as exports have grown at a CAGR of 50.8% to an estimated $ 25 billion in 2017-18.
Nasscom’s preliminary estimates show that revenue from digital is expected to comprise 38% of the forecasted $350 billion industry revenue by 2025.
The shift towards digital technology, however, is not a sudden development. India’s IT major, TCS, had moved its attention to digital platform almost four years ago when in 2014 it announced the launch of the Digital Software & Solutions Group, a new business unit designed to help customers undergo critical digital transformations through modular, fully integrated, industry-tailored licensed software and solutions.
The company has been positioned as a ‘Leader’ and ‘Star Performer’ in Everest Group’s “Digital Services – PEAK Matrix™ Assessment and Market Trends 2017: ‘Redefining Customer Experience with Digital’ ”.
TCS’ revenue from digital services was over $2.9 billion in 2016-17 – up 28.8% year on year basis. With digital projects becoming larger and more ambitious, their complexity and the attendant risks have also gone up, resulting in a greater propensity of customers to turn to large, trusted partners like TCS to guide them in their transformational journey, reduce risks and gain time to market benefits.
Backed by its increasing foray into digital platform TCS has managed to keep its growth momentum despite global uncertainties last year. And although its revenue growth in 2017-18 was lower than that of the previous year, the growth rate of net margins at 6.7% was considerably higher that 2.5% of the previous year.
Infosys, India’s second largest software company has done even better. Its net profit grew 16.9% last year against 8.9% in the previous year. Its revenue has grown 4.5% in 2017-18. What is more important is that despite the layoffs during last year, the industry is recruiting new hands. TCS has added some 7,775 (net addition) more hands last year taking its total work force to 3,94,998. Infosys’ net addition was 3,743. Its total headcounts are now 2,04,107. Nasscom expects the industry to add one lakh jobs in 2018-19. If better economic performance of the US has generated hopes for higher exports, prospects of better economic growth and government’s renewed thrust on digital platform back home, are slated to increase domestic revenue of the IT sector. The public cloud services market in India is projected to grow 35.9% to reach $1.3 billion according to IT consultancy, Gartner. Increased penetration of internet and rapid emergence of e-commerce are the main drivers for continued growth of data centre co-location and hosting market in India. The Indian Healthcare Information Technology (IT) market is valued at $1 billion currently and is expected to grow 1.5 times by 2020. India’s business to business (B2B) e-commerce market is expected to reach $700 billion by 2020 whereas the business to consumer (B2C) e-commerce market is expected to reach $102 billion by 2020.