IT industry may see muted growth in fiscal 2016
3 min read . Updated: 10 Feb 2015, 12:36 AM IST
PremiumResearch firms say information technology services exports will grow only 10-12% in 2015-16
New Delhi: The $118-billion Indian information technology (IT) industry could see muted growth in the fiscal year ending March 2016, even lower than the 13-15% growth that software lobby Nasscom forecast for the current fiscal as most businesses keep a wary eye on their IT budgets, say industry analysts.
A report by Offshore Insights Research and Solutions Pvt. Ltd, a Pune-based research firm, released on Monday said the current fiscal year growth will settle at just about 11.5% to 12%, lower than Nasscom’s forecast, IT services exports will grow only 10-12% in fiscal year 2015-16.
“The year doesn’t look very attractive. While vendors are claiming recovery, clients told us that they may still follow a conservative approach on spend," said Offshore Insights’ chief executive officer and research director Sudin Apte. He reasoned that as “Europe continues to face economic challenges and oil-producing countries face a crunch, we don’t expect global IT spend and offshore spend to increase significantly, and growth levels will remain same like last fiscal".
According to the report, based on 390 interviews of IT and business decision-makers across North America, Europe and the Asia Pacific, after two years of moderate recovery, businesses see limited change in the situation with 38% of respondents saying the business outlook will remain largely unchanged in fiscal year 2015-16.
Sanchit Vir Gogia, founder and chief executive officer of Greyhound Research, agreed the IT industry’s growth has “pretty much plateaued".
“Our estimate is that the industry will grow about 14%, which is statuesque when compared to last year," said Gogia. He attributed the flat growth to a “change in business models".
“The cloud contracts and the managed services contracts that are being given out are smaller in size and duration, that is, they are shrinking in size. This is impacting the topline of the companies. While it is not evident this year, it will start having adverse impact on growth from next year onwards," said Gogia.
Nasscom, which will be revealing its annual IT industry forecast on Tuesday, declined to comment for this story. However, analysts widely expect the lobby body to lower its growth target.
Meanwhile, the Offshore Insights report said that the overall technology spend is expected to grow 4% in 2015 as compared with 3.5% in 2014.
“While clients’ budgets increase, largest of increased budgets will go to software. Hardware will continue to face cost pressures. IT services too will see moderate growth," said Apte.
The report noted that a majority of businesses (52%) said they foresee no change in hardware spending over the next 12 months, 48% predicted no change in IT services spending, and 37% said software spending will remain the same.
The challenges faced by the Indian IT industry seem to have grown manifold.
“Low-cost providers, such as Indian IT companies, are also facing or are expected to face competition from a very different sector—SaaS (Software as a Service) and cloud companies. Many clients may increase their services spend, but that won’t essentially translate into offshore business," said Apte.
“Barring a few exceptions, the coming year will continue to be a tougher period not only for most of the undifferentiated mid-tier and small companies, but also for a few of the top providers that continue with instability and/or low pace of transformation," Apte added.
On the upside, there are a few sectors where the IT spending will remain robust.
While retail, high-tech, healthcare, media, travel and hospitality will witness relatively sluggish growth, the Offshore Insights report said, energy and utilities will witness the highest percentage growth in IT spends at 7.7%.
“BFSI (Banking, Financial services and Insurance) and telecom will witness relatively lower growth in budgets (about 4.5% for BFS and 5% for Insurance)," the report said, adding that another key vertical for Indian IT, which is manufacturing, will also witness a 5% rise in IT spend.
The North American market is expected to continue to recover fast, clocking about 5% increase in overall IT spends, the report said. The UK, as well as Nordic countries, will witness similar growth in overall tech spends.
However, the report cautioned that other parts of Europe and Japan will see flattish budgets, with a few companies even shrinking their tech spends.
