Mumbai: Industry lobby National Association of Software and Services Companies (Nasscom) forecast information technology (IT) exports from India will grow 12-14% in the next fiscal, faster than the revised 10.9% growth it predicted for the year to 31 March, as economic recovery in the US and Europe may prompt more companies to farm out work to India to save costs.
“We expect 2013-14 will be a better year. In February 2013, we have much better visibility than what we had in February 2012,” N. Chandrasekaran, chairman of Nasscom and chief executive and managing director of India’s largest software exporter Tata Consultancy Services Ltd (TCS) said on Tuesday. Nasscom’s 10.9% forecast for the current fiscal is the lowest in five years.
Brokerage CLSA India Ltd in its report dated 12 February said Nasscom’s FY14 outlook “suggests that demand could be on the way up after a modest FY13 performance. Nasscom’s outlook resonates well with the constructive commentary coming from companies as well as third party deal advisors such as TPI. With clients adhering to IT budgeting timelines and some un-freezing of discretionary spends, achievement of street FY14 growth expectations is no longer dependent on a 2H pick up unlike in FY13.”
The 12-14% growth forecast by Nasscom is a very achievable target, said an analyst at a foreign brokerage, who did not want to be named. “In Europe, there has been a pick up in outsourcing among only banking and financial services who are cutting costs. Yet there has been an improvement in Europe in terms of growth rates of IT companies compared to their growth in US,” the analyst said.
Nasscom president Som Mittal pointed out that the base of the Indian IT sector was almost twice the size it was five years ago and hence, revenue growth would not be as high as it used to be.
Sid Pai, partner, global resourcing and India operations, at Information Services Group, a research and advisory services company, said the IT sector is certainly not going to return to the 30% growth rate of the past.
“Our expectations of this year (calendar year 2013) is also a cautious optimism. US recovery is driving the optimism and hopefully, we are seeing an end of uncertain times in Europe. But we are not out of the woods yet completely both in Europe and the US,” he said.
The software services sector’s hopes for a recovery have been buoyed by strong earnings from the country’s top service providers in January. In January, TCS led the way with strong results that comfortably beat market expectations, as larger clients sent more back-office work overseas.
Infosys Ltd, Wipro Ltd and HCL Technologies Ltd also posted better-than-expected earnings. Last week, US-based Cognizant Technology Solutions Corp., whose employees are mostly based in India, also posted strong results, helped mainly by an improved performance in Europe, and also forecast a 17% growth in 2013 revenue.
Nasscom’s current financial year forecast of 10.2% in dollar terms and 10.9% in constant-currency terms fell short of the lower end of its earlier estimate of 11-14%, far off from its 2007-08 forecast of 24-27%. “We had revised the forecast numbers to the lower end of our estimate (11%) in constant-currency terms, I think we are pretty much on the ballpark,” said Chandrasekaran.
Ankita Somani, an analyst at Angel Broking Ltd, said that Nasscom’s growth forecast of 10.9% for the current financial year was disappointing but expected. Discretionary spending has not happened at the same levels this year compared to the years 2010 and 2011 when there was a sudden spurt of demand. Now, clients are more prudent in discretionary spending and growth in key markets such as Europe is volatile.
For 2013, technology researcher Gartner Inc. expects worldwide IT spending to increase 4.2% to $3.7 trillion, it said in a January report.