As we move into the earnings season, this is perhaps a good time to take a look at the half year gone by and how the rest of the year is likely to pan out. The start of 2010 indicated that Indian IT firms would announce a sharp rise in profits when the quarterly reporting season would kick off, fueled by improving business and an emergence from the depths of the financial crisis. Analysts had predicted that the 30 companies that make up Mumbai’s benchmark Sensex Index would announce a year-on-year increase in net profit of between 15 and 20% for the quarter ending December 2009.
Jump start to half way through the calendar year and we find that India’s economy grew by a faster-than-expected 7.9% in the three months to September 2010, picking up pace from the previous quarter when it grew by 6.1%. This was possible due to growing demands across sectors and high business confidence.
This improved business sentiment in India was reflected in the Mumbai stock exchange which vaulted by 80% over 2009—its biggest annual gain in 18 years—after it had declined 52% in full-year 2008. Such has been the force of the revival that India’s government and central bank now face a tricky balancing act in fighting inflation and keeping economic recovery on track.
Back to the present: The results put up by the IT companies in India in FY 11 have the markets enthused. The good news is that the outsourcing industry is making a comeback. Pipelines are strong and a strong focus on expanding markets and business lines is showing results. The industry is more competitive than ever and companies are beginning once again to look out for targets to acquire.There’s little doubt that demand for outsourcing has picked up and revenues of Indian IT firms are likely to get boosted by pent-up demand. Growth in the near-term, therefore, will be strong. Demand for technology consulting is robust, with record order bookings for the second consecutive quarter.Over the past decade, the Indian IT-BPO sector has become the country’s premier growth engine. It has demonstrated tremendous resilience in recovering so quickly from the extremely adverse impact of recessionary headwinds as clients cut their IT budgets, canceled or postponed deals, delayed payments, and went bankrupt while others renegotiated pricing, looked for severe pricing cuts to stretch the dollar.
A challenging demand outlook, changes in customer requirements and pricing pressure acted as a driver to build in greater efficiencies and flexibility within the service delivery and the business models—which is here to stay. The advent of 2010 has signaled the revival of outsourcing within core markets, along with the emerging markets increasingly adopting outsourcing for enhanced competitiveness. Key demand indicators in the last two quarters such as increased deal flow, volume growth, stable pricing, and faster decision making has made the industry post good results. Though full recovery is expected in another two quarters, development of new growth levers, improved efficiency and changing demand outlook signify early signs of recovery. Reports pouring in from international technology research agencies point towards a resurgence of the Indian IT industry. It was expected that during 2010, IT outlays would increase in the US and other major economies, which was indeed good news for Indian IT exporters. The forecast was based on the positive trends seen in Q4 2009. Global research agencies like Gartner and Forester Research have come up with similar predictions. While Gartner forecasts a 5.3% rise in global IT expenditure, Forrester is a bit more optimistic with 7.7% growth. Forrester expects US IT purchases to grow by 8.4% and of Asia-Pacific by 8.3%.Though currency fluctuations are still a concern for Indian IT companies and can end up taking away the sheen from the dollar earned, Forrester forecasts an increase that will more than compensate for declining dollar values. Various US sectors such as finance and insurance, manufacturing, healthcare, utilities and telecommunications are expected to make a strong come back after below-par performance last year. Forrester has raised the hopes of Indian IT exporters by predicting that these sectors will spend 17% of their IT budget on outsourcing.Both research agencies anticipate that preference will initially be given to projects offering low-cost benefits, as the focus will be on cost-optimisation.
The Indian IT-BPO industry is forecast to aggregate revenues of $73.1 billion in FY2010, with the IT software and services industry accounting for $63.7 billion of revenues. During this period, direct employment is expected to reach nearly 2.3 million, an addition of 90,000 employees, while indirect job creation is estimated at 8.2 million.
Export revenues are estimated to gross $50.1 billion in FY2010, growing by 5.4% over FY2009, and contributing 69% of the total IT-BPO revenues. Software and services exports are expected to account for over 99% of total exports, employing around 1.8 million employees. Indian IT service companies have evolved to emerge as full service players providing testing services, infrastructure services, consulting and system integration.
Further, cloud computing took centrestage this year as it offered clients access to best-in-classprocess management. Eventhough growth in BPO was in single digits for the first time, it is still likely to be the fastest growing segment of the industry and was estimated to reach $12.4 billion in FY2010. Increased acceptance of platform BPO solutions was the key highlight, as BPO providers increasingly focused on transforming client businesses through a mix of re-engineering skills and new service delivery methods.
I do believe that that when we look back at the Indian IT industry’s performance at the end of this fiscal, we will remember 2010-11 as a watershed year in which the industry demonstrated its maturity and the robustness of its business model. It has not only recovered smartly from the worst downturn we have seen in living memory but also re-engineered and reinvented itself and is now well poised for the future.
Source:http://www.financialexpress.com/news/it-industry-is-more-competitive-than-ever/698779/0
