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Growth in Indian IT sector here to stay - Views on News from Equitymaster
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  • Mar 15, 2012

    Growth in Indian IT sector here to stay

    Every industry goes through good and bad periods. And, Information Technology (IT) sector is no exception. The Indian IT sector is bound to feel the heat when the global economies, particularly the developed ones, are going through several uncertainties. After all, a large part of the sector's revenues comes from the US and European markets. Therefore, fortunes of the software sector in India are very much dependent on the health of the developed world economies. And, this is what has hit the growth momentum of the sector in recent times.

    However, the Indian IT sector had witnessed its golden period during the last decade. Despite having turbulence in the global economy, the sector multiplied 9 times. What led to this kind of stellar growth? The answer is plain and simple. Information Technology creates leverage. It enhances both efficiency and effectiveness of business operations. In turn, this results into a better financial performance of the client enterprise. The management of the companies, around the world, understood the power of IT and spent on the same to grow their business.

    Just look at the low prices offered by retail companies such as Wal-Mart. It became possible only through the use of technology in the supply chain as well as vendor management. And, the company registered a phenomenal growth. It is on the back of IT that Dell was able to deliver customized products without buying and inventorying parts in bulk. There are umpteen such examples.

    In India too, online trading transformed the dynamics of the Indian stock markets. Similarly, companies in different industries such as manufacturing, healthcare, telecom, energy and financial services gradually adopted the power of IT. This propelled the growth momentum of the sector during the last decade. And, Indian IT companies, being low cost services providers, with their excellent project delivery capabilities thrived on this opportunity.

    And now some people think that this is just history. They feel that the growth in the sector has reached its saturation point. Is it true? Evidence suggests otherwise. Have a look at the some of the numbers, projected by the National Association of Software and Services Companies (NASSCOM). It expects India's information technology and outsourcing industries to cross US$ 100 bn during FY12. This is double the size during FY07. NASSCOM also predicts that by 2020, it would reach US$ 225 bn. These numbers certainly hint at a bright future for the whole sector.

    But are these just numbers or is there any truth behind them? The fact of the matter is that the need to increase business efficiency is only growing by the day. The business environment is changing. The clients' needs and expectations are changing. The Indian IT sector had once thrived on the back of mostly application development and maintenance services. Now they are offering new services to its clients as per the latter's changing business requirements. They are actively participating in solving clients' business problems through providing consulting and business analytics services.

    The mode of serving the clients is also changing. Now services such as cloud computing and mobility are emerging. This is totally different from the earlier way of getting services, which was mostly on pay per hour (man hour) basis. There is a transformation from company-owned hardware and software assets to per-use service-based models. This is helping IT companies get new clients due to its cost effectiveness.

    As regards geography, undoubtedly the US market would continue to remain an important growth driver. However, the current European crisis is now forcing companies in the region, to open their purse strings to the Indian companies as the latter are able to provide cost effective services. And, it is not just the developed markets, Asian markets too have a great potential to provide growth opportunity to the sector. So does India. In terms of numbers projected by NASSCOM, Indian clients alone are expected to contribute nearly US$ 50 bn by 2020, as India as a country is still under-invested in technology.

    It is true that Indian IT is entering a new phase. Maybe this phase would not see the explosive growth that the sector had seen in its nascent stage. But it is certainly more matured and long term in nature. The growth story of the sector is but far from over.



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