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Indian IT: Investments on track

Dec 23, 2008

BSE-IT index is amongst the worst performing indices this year. The index is down almost 49% since the beginning of the year as IT stocks have been beaten down severely. There has been no dearth of bad news for the sector over the past few months. From extreme currency volatility to impact on business due to the financial crisis in the US and European regions, these firms have seen it all. Considering the grim situation, one might conclude that capital investments by IT companies are also on a slippery ground as the growth outlook looks bleak. However, if one were to go by the projects that some of these companies are working on currently, situation seems unlikely to remain grim long term into the future.

As per the CMIE (Centre for Monitoring Indian Economy) capex survey, about 300 projects with total investment outlay of roughly Rs 175 bn were outstanding in the Indian IT sector at the end of September 2008. Out of these 300 projects, about 165 odd projects were under construction. There are two major under construction projects which are being executed at investments of more than Rs 10 bn. These two mega projects are Nagpur computer software project of HCL Technologies and Jaipur software park cum residential project of Infosys.

Furthermore, in the backdrop of withdrawal of the tax incentive under the Software Technology Park in India (STPI) scheme after March 2010, IT industry is significantly investing in SEZs (special economic zones). As per the CMIE, about 600 software parks (IT/ITES SEZ) with investment outlay of Rs 1,260 bn were outstanding at the end of September 2008. Following is the table which elucidates the SEZ investment plan of Indian IT majors. Investments in SEZ

Investments in SEZs
Company No. of projects Investment (Rs bn)
TCS 20 52
Wipro 25 32
Infosys 18 67
Satyam 14 3
HCL Tech. 9 25
Source: CMIE

These investments would add on significant capabilities to the industry by providing substantial seating capacities for IT professionals. These major growth plans and capability building initiatives indicate that Indian IT firms are poised to grow in the future. Though there are short terms hurdles which can pose serious challenge to these companies, the business proposition of offshore outsourcing remains attractive from a long term perspective, and so is the investment proposition in these companies.

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