Large Caps Could Lead IT Charge

There could be some good news from the global economy for the Indian IT industry. This sector that depends upon the global (as opposed to domestic) demand for its growth had seen some harrowing moments with the global economy in turmoil. This is now set to better.

And thanks to some intrinsic advantages the Indian IT sector may actually be competitive vis-à-vis global competitors.

“Global IT - Business Process Management (BPM) spend is expected to grow in the range of 5 to 6% over the next two years and global sourcing is set to grow faster at approximately 8% during 2013 and 2014,” says Ankita Somani an analyst with Angel Broking. This is on the back of the global economy doing better than it has in quite a few years. The global economy is set to improve; going ahead; with global GDP predicted to grow by 3.5% in CY 2013 and 4.1% in CY 2014.



And for all of the vaunted Indian challenge of the IT pie, a huge section still remains untapped. “India continues to be the global sourcing leader, but it accounts for only approximately 10% of the total global IT-BPM spend of 124-130 billion dollars, which implies that the market is huge and presents immense untapped opportunity,” says Somani.

Angel Broking experts state that worldwide IT spending would post a three-year CAGR (Compounded Annual Growth Rate) of 4.4% while the total sourcing market is expected to grow by approximately 7-8%. The former figure excludes hardware spend.

Globally the IT services market has posted a 5 year CAGR of approximately 3.5% and global sourcing market having posted a CAGR of approximately 9% commensurately, Indian software services revenue has posted a 16% CAGR almost double the growth in global sourcing. “The primary reason for the same being the labour arbitrage or cost savings to clients,” says Somani.

To benefit from the IT spend it is Indian large cap IT companies that are expected to take the lead. “The Top-5 Indian IT services vendors have increased their share of Indian IT exports by approximately 135bp (basis points – one basis point is one hundredth of a percentage point) per annum,” says Somani.

According to trends from within the sector Indian large-cap players have been surpassing mid-cap companies in terms of grabbing market share. “Taking into notice the average market share gains over the past 6 years and 7-8% CAGR in global sourcing spend for the next three years, the top-5 Indian IT companies are likely to grow at approximately 14% CAGR over the next three years,” finds Somani.

Recommendations