X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Software: Inflection point - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Jun 11, 2002

    Software: Inflection point

    One of the biggest success stories of India is the stride that Indian software companies have made on a global scale in the recent past. A number of companies have spread their wings in the international markets and are now catering to the Fortune 500s of the world. This is quite an achievement considering the fact India was yet to make its mark as an industrial economy. India Inc was able to spot the potential of software and related activities earlier. However, it seems that we might miss this revolution also if things move the same way as it has been in the last two years with Indian software companies.

    Before going any further, consider the size of the global software sector. Market size of the software sector, on a global scale including hardware, software and services, is estimated at US$ 1,200 bn in FY01. Of this, software alone accounts for as high as US$ 389 bn. India's market size for software alone is around US$ 8 bn (roughly 1.5% of global market size).

    What do the figures above tell us? Indian companies are still very small when visualised on a global scale. Given the fact that we are still small, should a fall in tech spending affect at all? If the Indian software companies have been affected, why is it so? Probably, due to the fact that majority of the Indian companies are not providing mission critical applications, which are essential for smooth functioning of an organisation, and are at the lower end of the software value chain.

    Thus, despite of being very small in size, they are facing pressure from all sides (be it, billing rates, new contracts etc). This is due to organisations cutting their IT spends to keep costs down. And it makes more sense cut on smaller tech budget as opposed to installation of a SAP system, which could save millions in the long run for an organisation. Though Infosys is ranked as a top rung software company in India, when viewed on a global scale, with revenues of about US$ 613 m it is miniscule compared to IBM that had around US$ 38 bn in revenues in 2000.

    But this is not to undermine what we have achieved over the last decade. Bear in mind the infrastructure constraints that these firms have been facing. Bare necessities like bandwidth have been scarce. However, the potential of the Indian software sector is now being recognised world over.

    But after rising to the occasion, they are faced with a new challenge of moving further up the value chain into domains that have been traditionally the strong hold of Western consulting and services companies. This is an uphill task, which of course is easier said than done. Value chain graduation does not necessarily mean just moving one step ahead from body shopping to call center business.

    The competitive edge of Indian IT sector, as of now, is lower labour costs. But how long can we sustain such model? This cannot be a sustainable unique selling proposition in the long run. As Deepak Ghaisas, CEO of i-flex Solutions puts it "the IT industry, in the last three decades of its growth, has been constantly arbitraging labour costs. That needs to change now..." Read more

    Companies like Check Point of Israel, global leaders in security software, are able to circumvent the slowdown to a certain extent because of a strong product portfolio. The company spends around US$ 7 m per quarter in research and development (7% of revenues), whereas Infosys' R&D spend in FY02 stood at US$ 3 m per annum (1% of revenues). Companies like Intel and IBM thrive on R&D and one can see the size and magnitude of operations. Therefore, R&D is imperative and only that could provide long run competitive advantage.

     

     

    Equitymaster requests your view! Post a comment on "Software: Inflection point". Click here!

      
     

    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    Dear PM Modi, India is Already Land of Self-Employed, and It Ain't Working (Vivek Kaul's Diary)

    Aug 21, 2017

    Most Indians who cannot find jobs, look at becoming self-employed.

    Here's What Driving Gold Prices Up These Days (Outside View)

    Aug 21, 2017

    PersonalFN explains the chief factor pushing gold prices up of late.

    How Unique Are the Companies You Invest In? (The 5 Minute Wrapup)

    Aug 21, 2017

    One of the hallmarks of successful investing is to look out for companies that have a unique and enduring moat.

    You've Heard of Timeless Books... Ever Heard of Timeless Stocks? (The 5 Minute Wrapup)

    Aug 19, 2017

    Ever heard of Lindy Effect? Find out how you can use it to pick timeless stocks.

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Profitable Investment in the History of the World(Vivek Kaul's Diary)

    Aug 8, 2017

    'Yes, it looks like a bubble. And, yes, it's like buying a lottery ticket. But there's something happening that has never happened before. It's an evolutionary leap in money itself.'

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE SENSEX


    Aug 21, 2017 03:37 PM

    MARKET STATS