India

Sector Review IT

Jai Dave
(91) 8097670347 jaibdave@gmail.com 03 May 2013

Sector Overview
100billion $ Industry

IT Industry revenue has grown from 1.2% of GDP in FY1998 to 7.5% of GDP in FY2012. Indian IT Industry also crossed 100billion USD revenue in FY2012. IT services exports grew by 19 per cent in FY2012, thus touching the figure of USD 69 billion USD. It was the fastest growing segment for India in FY2012. The industrys share of total Indian exports has risen to 25% in FY2012 from a meagre 4% in FY1998.

Increase in Exports

Supply and Demand

Supply is abundant at lower end of IT services like application development but at the high end services which require unique skills are still scarce. These high end services include consultancy, integrating etc. Demand is expected to remain sluggish as Indian IT industry is export driven and two of its major buyers viz. US and Europe battling with crisis.

Competition

Competition in IT Industry is immense within India due to low barriers of entry in this industry. Competition in IT Industry is global in nature and have increased significantly as more and more companies and countries trying to imitata the Indian offshoring model. As prer NASSCOM, Indian IT companies will be facing stiff competition from other emerging countries like Hungary, Romania etc.

Impact of Inflation

A major expense for IT companies is of wages. So, Wage inflation could increase the cost for the IT companies putting pressure on the bottom line. Rupee depreciation in the last year helped IT companies as it raised their revenue. This year the Indian IT companies may not have the same advantage and will have to be hedged against the risk of rupee appreciation.

Rupee Appreciation

Foreign Investments

Government has allowed 100% FDI in electronic hardware and software development sector. Government had also abolished the the license raj which attracted more foreign investors. As a result, we have many MNCs coming to India and setting up their offices.

Government Initiatives

Government has recognized the importance and capability of IT sector and has taken various measures to aid its growth. Telecom sector deregulation and creation of SEZs are two such initiatives. In the FY 2013 budget, government has shifted its focus towards education and skill development which is structurally long term positive for the sector.

Future of the sector

As per NASSCOM, Indian IT sector is expected to generate 130billion USD of revenue by FY2015. They also forecast the growth of Indian IT/ITES industry to be around 11-14% in FY2013. It is expected that IT spending will significantly increase in various segments like automotive and healthcare. The government will continue to be a major spender keeping its focus on e-governance.

PEST Analysis

IT sector has been benefiting because of good relations of India with major powers such as USA, Europe etc. Global IT spending has decreased due to global recessionary climate. Volatility will be high, especially in the second half of the FY2013 as election dates would be approaching. The attrition rate which is very high in IT sector is seeing a decreasing trend since 2008 and they have also hired less. Indian IT sector, along with skilled and cheap labour also has demographic advantage. IT sector is also benefited because of lower telecom tariff.

Please see important notice on last page

Page 1 of 5

India

Sector Review

09 May 2011

Figure 1

India IT/ ITeS Industry Size (2007-12) and % of GDP

CAGR for IT Industry is 16.5% for period 2007 - 2012

IT Revenues (USD billion) & its ontribution to GDP (%)

120 100 6.4% 80 69 60 40 20 22 0 2008 2009 2010 2011 2012 2013E
% of GDP Domestic IT/ ITeS Market
Source: NASSCOM
Figure 2

7.1% 6.7% 6.5%

7.5%

8.0%

9.0% 8.0% 7.0%

76 59 41 47 50

6.0% 5.0% 4.0% 3.0% 2.0%

22

24

29

32

37

1.0% 0.0%

IT/ ITeS Exports Revenue

IT impact on Indian economy

ITs impact on Indian economy

Source: NASSCOM

Please see important notice on last page

Page 2 of 5

India

Sector Review

09 May 2011

Figure 3

Growth Drivers for the IT Industry Growth Drivers

Cheap and skilled labour Adherence to Quality standards Unique Geographic location

English speaking population in India is more as compared to the other competing countries. Apart from that the skilled labor in India is also cheaper as compared to other countries.

Most of the known companies in India always follow to quality conformance standard like CMM and various ISO standards.

The time difference between India and USA gives India the geographic location advantage

Supportive Government policies

Source: NASSCOM
Figure 4

Government has realized the importance of IT Industry and have aided the growth of Industry by Setting up SEZs , allowing foreign players etc.

Top IT Players in Indian IT Industry

The IT Industry can be broadly classified into following four categories

Source: Research, Company reports

Please see important notice on last page

Page 3 of 5

India

Sector Review

09 May 2011

Figure 5

Analysis of Porters 5 forces

Source: Research

Please see important notice on last page

Page 4 of 5

India

Sector Review

09 May 2011

Figure 6

Porters 5 forces analysis

Source: Research
Figure 7

SWOT Analysis

SWOT Analysis

Source: Analysis

Page 5 of 5