The global sourcing market in India is continuing to grow at a faster pace. The global IT services industry is currently going through a transition phase from traditional to digital transformations like cloud computing, analytics, artificial intelligence and IoT. India is the leading sourcing destination across the world, with about 55 per cent market share of the $200 billion global services sourcing business in 2017-18.
Indian IT services companies are synchronising with demand and have brought the revolution within themselves to take advantage of the changing scenario. Indian IT & ITeS companies have set up over 1,000 global delivery centres in about 80 countries across the world. India has become the digital capabilities hub of the world with around 75 per cent of global digital talent present in the country.
North America and Europe are again playing key roles as a majority of the business is coming from these regions. Majority of the clients are having high digital spending across verticals, which are driving high repetitive business from the horizontals.
Digital transformation is a huge opportunity
These business transformations are creating a huge opportunity for IT services companies. Nasscom projects the size of digital transformation businesses at around $470 billion by 2023. The markets are likely to grow at a CAGR of 18.5 per cent over next five years.
The industrys exports increased to $126 billion in FY18 while domestic revenues rose to $41 billion. Indian IT sector's core competencies and strengths have attracted significant investments from major countries. The IT services sector in India attracted cumulative foreign direct investment (FDI) flows worth $32.23 billion between April 2000 to June 2018, according to data released by the Department of Industrial Policy and Promotion (DIPP).
Higher investment to help build robust infrastructure
Leading Indian IT firms like Infosys, Wipro, TCS and Tech Mahindra are diversifying offerings and showcasing leading ideas in cloud computing and artificial intelligence to clients using innovation hubs and research & development centres in order to create differentiated offerings.
The Indian government is also taking initiatives to boost the sector. The government has identified IT as one of 12 champion service sectors for which an action plan is being developed.
Also, the government has set up a Rs 5,000 crore fund for realising the potential of these champion service sectors. As a part of Union Budget 2018-19, Niti Aayog is going to set up a national-level programme that will enable efforts in artificial intelligence and will help leverage AI technology for development works in the country.
Visa delays & rupee fluctuation may play spoiler
While demand remains robust, H1-B visa issuance may delay project deliverables. The visa rejection rate has also gone up by 6 per cent to 22 per cent in FY18 and local hiring may increase operating cost.
As a majority of the business is coming from exports to the US and the UK, the IT services industry in India largely depends on US dollar and other foreign currencies. Thus, fluctuations in the USD/INR pair may impact realisations.
Conclusion: India is the topmost offshoring destination for IT companies across the world. Having proven its capabilities in delivering both on-shore and off-shore services to global clients, emerging technologies now offer an entire new gamut of opportunities to top IT firms in India.
Strong demand from different geographies will revive IT exports in the coming future. However, fluctuations in the INR may impact profitability. We expect 10-12 per cent growth in the IT sector in FY19 and 13-15 per cent growth in FY20.
(Arun Thukral is MD & CEO of Axis Securities. Views are his own.)
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