As companies accelerate their modernisation and digital transformation initiatives, the demand environment for Indian IT services is expected to improve, adding to the likelihood of large-deal wins.
It is also expected that in the next fiscal there would be better growth distribution across verticals and sectors for Indian IT companies such as manufacturing, retail and healthcare. Indian IT services companies will continue to have a competitive advantage as there could be higher offshoring and lower subcontracting, which will help reduce the cost of delivery. In addition, efficiencies from lower overheads for IT services companies will also keep margins steady.
As per a recent report by HDFC Securities, the Indian IT sector revenue will grow between 14.4 to 10.8 per cent in (in dollar terms) for the next two fiscals. It is also expected that the growth for mid-tier IT companies will come in at 15.1 to 12.5 per cent.
As per the report, the growth in revenues of different IT companies is also expected to result in an increase in the attrition levels of the IT services companies in the medium term and utilisation levels can also moderate. It is also expected that SaaS (Software as a service) will be the next big opportunity. The report points out that the current pandemic also increased the acceptance of global delivery models with seamless progression into virtual framework of sales, knowledge transfer and execution.
Travel and hospitality sectors to see sequential improvement
The HDFC report observes that for large IT firms such as TCS, sequential improvement is expected in the travel and hospitality segment. There also has been an uptick in offshore delivery of the company with clients now more comfortable with the WFH model for non-critical processes. Currently, 97 per cent of the workforce of TCS is working from home. The work-from-anywhere model has lead to higher offshoring and lower dependence on sub-contractors (largely onsite).
With the normalization of the market, the company expects an increase in travel cost and facility expense but it will not return to pre-COVID levels. It is expected that TCS will continue to strengthen the workforce at the bottom of the pyramid and will focus more on re-skilling and training exercise to address cost and demand fulfilment. Lateral hiring will be just in time.
Similarly, Infosys has an advantage to better manage the scale and complexity of large deals and their large deal traction is driven by continued investment in the sales capability, deal directors, and capability augmentation through acquisitions. Infosys has six hubs in the US and will further increase localization with 12,000 hirings in the US and 4,000 in Canada. However, the attrition rate for the company can inch up to 14-15 per cent.
The HDFC report notes that the IT major Wipro has had a new organisational structure in place from Jan 1, 2021 and hiring at the senior leadership level is in progress. The company has seen good traction in the banking, finance and insurance vertical as well as in the energy and utilities vertical, despite Europe having seen a cut in IT spending by oil and gas majors. Similarly, for Wipro like other large IT players, as things return to normalcy, the travel costs will inch up but will not reach pre-COVID levels anytime soon.
