The Indian IT sector gets most of its revenue from the US and European markets. Its fortunes are closely linked to the economic well-being of the economies of the western hemisphere. With these economies now reeling under the impact of the coronavirus pandemic, many IT projects may take a hit with customers postponing or deferring technology projects.
Moreover travel restrictions will impact the movement of IT professionals from India and can affect ongoing technology projects of Indian IT companies at offshore locations in the West.
“The economic situation both in US and Europe is likely to turn adverse for much of 2020. As such these markets are ruffled, new investments in IT projects is likely to take a back seat. Economic integration [is affected as] travel is either banned or carries the risk of [spreading] coronavirus. [This] has thus limited close coordination with the demand markets. Besides this, work from home is an alien concept for the IT industry. Many projects require a specific context of close coordination, a secure environment and IT assets that are aligned to process and people. These can not be replicated in distributed environment, specifically in the short to medium term,” explained Alok Shende of Ascentius Consulting.
A recent report by Emkay Global Financial Services on the IT sector says that these companies could see their revenue growth hit, especially in the first quarter of FY21, due to the global growth scare and potential shift in client expectations. The report says that Indian IT sector's FY21 growth prospects remain at risk, in contrast to the view that post the FY19 quarter results, 2020-21 would see companies improve revenue growth.
Sarita Digumarti, co-Founder and the Chief Operating Officer of Jigsaw Academy feels that there is bound to be short term pain for the Indian IT sector because many clients are going to re-prioritize their spends and business goals. “Anything that is considered non critical as a project, will probably be out on hold for some time. It is evident that in the long run, we will end up in an environment where businesses are done virtually and where technology will play a big role in innovations and designing the infrastructure and applications of this new reality,” Digumarti told THE WEEK.
Indian IT companies also have their data and development centres at many locations in the West. There, movement could be restricted due to social distancing, not to mention the impact of travel bans. All this will impact IT companies as their centres will not be able to maintain the same level of business continuity in the long run.
“Many of the Indian IT services companies are going to be impacted by multiple factors due to the virus. Their business continuity, disaster recovery and their manpower itself will be impacted. All this is expected to go on for the next three to six months and that will impact their deliverable and time lines as this entire industry is manpower based. Even though IT companies are allowing work from home, I do not feel that the output will be the same from the workforce of these IT companies. Due to all this the revenues of many of these IT companies will be affected, especially the on-site revenues as there are travel bans across the world. The travel and tourism sectors that have taken a maximum hit will also impact the receivables of the Indian IT companies as many of them develop software for these companies. If things go on like this the Indian IT sector will cut down their numbers and revenue targets in the long run,” remarked Rajiv M. Ranjan, founder and CMD of PaisaDukan.com.
However, in a different view, a report on the technology sector by Motilal Oswal Institutional Equities observed that despite the near term COVID-19 uncertainties, the Indian IT sector and IT companies would be able to ward off any challenge they come across. This will be mainly due to their robust business models, high return ratios, strong management teams and attractive valuations after the recent sharp correction. The report pointed out that many of the India IT companies have the legacy of overcoming multiple business challenges and technology change cycles in the past and hence they will be able to adapt and overcome any transient challenges posed by COVID-19.