Demand drivers for IT firms remain solid, but wait for final budgets to get a clear picture
Nasscom guided for 12-14 per cent IT exports growth in FY14. Given the traction over the past few years, the industry is bracing to deliver at the higher end of that band. The demand drivers for Indian IT remain solid, going into CY14, lending reasonable confidence of growth acceleration for the industry in FY15 too, though the finalisation of IT budgets will give a clearer picture.
Earnings of Motilal Oswal Securities’ tech universe have grown 20 times in the last 11 years (FY03-14), at a CAGR of 32 per cent. The stalwarts like TCS and Cognizant have thrived, defying the law of large numbers as they grow on a high base. A gradual turnaround in lagging companies like Infosys and Wipro, too, is being facilitated by benign macro environment, which in turn contributes to a better-looking sectoral performance. This trend is also benefiting HCL Tech and Tech Mahindra to gain size from this big and rising profit pool.
US companies are entering CY14 budget cycles with a much more improved outlook on the macro, compared with that in the past two years. Europe, especially continental Europe, remains an underpenetrated market for the industry, and a gradual increase in offshore adoption continues to drive growth. Emerging technologies like cloud, mobility, Big Data and analytics (SMAC) continue to gain prominence. Albeit at a small scale, the services segment remains in a rapid expansion mode, and will drive the future demand for Indian IT.
Uncertainties and concerns around the macro hurt large discretionary engagements in past two years. That has begun to change, and the US remains at the heart of the improvement in the discretionary spending climate. With the demand for traditional services holding strong, discretionary spending is the delta capable of driving growth acceleration for industry in the next year.
The rupee has depreciated by 38 per cent since March 2011 and 24 per cent since March 2012. This has allowed the companies to invest in newer segments, more than they would have at a more competitive currency. The impact of such investments usually comes with a lag, something to look forward to in FY15.
At $85-87b, while the base is sufficiently large, segments like infrastructure management services (IMS), continental Europe, healthcare and energy and utilities are still underpenetrated, and will lead the growth for the industry. Simultaneously, given the prominence of SMAC, we expect the industry to continue building its capabilities, organically or through acquisitions and drive greater growth.
An adverse immigration bill in the US remains the key risk, but the noise around it has vanished, and so has the probability of an adverse bill after the HOR version of the bill did not contain the Draconian outplacement clause. However, it is not fully behind us, and may resurface. That said, the industry has started acting on the ground to prepare itself from a potential risk, by endeavouring to bring more work offshore and also hiring more locals onsite.
Nasscom guided for 12-14 per cent IT exports growth in FY14. Given the traction over the past few years, the industry is bracing to deliver at the higher end of that band. The demand drivers for Indian IT remain solid, going into CY14, lending reasonable confidence of growth acceleration for the industry in FY15 too, though the finalisation of IT budgets will give a clearer picture.
Earnings of Motilal Oswal Securities’ tech universe have grown 20 times in the last 11 years (FY03-14), at a CAGR of 32 per cent. The stalwarts like TCS and Cognizant have thrived, defying the law of large numbers as they grow on a high base. A gradual turnaround in lagging companies like Infosys and Wipro, too, is being facilitated by benign macro environment, which in turn contributes to a better-looking sectoral performance. This trend is also benefiting HCL Tech and Tech Mahindra to gain size from this big and rising profit pool.
US companies are entering CY14 budget cycles with a much more improved outlook on the macro, compared with that in the past two years. Europe, especially continental Europe, remains an underpenetrated market for the industry, and a gradual increase in offshore adoption continues to drive growth. Emerging technologies like cloud, mobility, Big Data and analytics (SMAC) continue to gain prominence. Albeit at a small scale, the services segment remains in a rapid expansion mode, and will drive the future demand for Indian IT.
Uncertainties and concerns around the macro hurt large discretionary engagements in past two years. That has begun to change, and the US remains at the heart of the improvement in the discretionary spending climate. With the demand for traditional services holding strong, discretionary spending is the delta capable of driving growth acceleration for industry in the next year.
The rupee has depreciated by 38 per cent since March 2011 and 24 per cent since March 2012. This has allowed the companies to invest in newer segments, more than they would have at a more competitive currency. The impact of such investments usually comes with a lag, something to look forward to in FY15.
At $85-87b, while the base is sufficiently large, segments like infrastructure management services (IMS), continental Europe, healthcare and energy and utilities are still underpenetrated, and will lead the growth for the industry. Simultaneously, given the prominence of SMAC, we expect the industry to continue building its capabilities, organically or through acquisitions and drive greater growth.
An adverse immigration bill in the US remains the key risk, but the noise around it has vanished, and so has the probability of an adverse bill after the HOR version of the bill did not contain the Draconian outplacement clause. However, it is not fully behind us, and may resurface. That said, the industry has started acting on the ground to prepare itself from a potential risk, by endeavouring to bring more work offshore and also hiring more locals onsite.
