Indian IT Sector: Analyze to Invest

The support of Information Technology to the various sectors like commerce, banking, education, telecom, healthcare etc has revolutionized the working of these sectors. It has also enabled them to deliver real-time quality oriented services to their consumers.

The power of two-way communication between consumers and the enterprise facilitated by the IT provides convenience at click. And, it has written a completely different growth story for the Indian Economy with its potential of having wide reach.

The origin of Indian IT industry dates back to 1970s. However, it is only in mid 1980s that India’s presence in the global software services market became possible. The opening of economy post liberalization gave the requisite boost to the sector with annual growth rate of 46% between 1992 & 1997. It had its own share of downfall during the global recession of 2008-09 but has recovered well since then.

(Image Source: NASSCOM, D&B Industry Research Services)

The Indian IT industry can be categorized into the following:
1. Tier I Players
2. Tier II Players
3. Offshore Global Service Providers
4. Pure Play BPO Providers
5. Captive BPO Units
6. Emerging Players

Growth drivers of this sector:
The chart on the right depicts various factors contributing to the growth of this sector

(Image Source: InnoVersant Solutions)

Concerns for the Industry:
1. Threat of emerging economies: China is gradually emerging as a tough competitor offering better rates with reduced operational costs as compared to India. Moreover, software sector of Korea, Taiwan, Philippine challenges India.

2. Over dependence on US Economy: Almost 70% of the industry’s revenues come from USA. The environment necessary for further growth of software sector would come with domestic consumption of its products which has been very less.

3. Appreciation of Rupee: As major part of the income is in foreign currency, appreciation of rupee reduces revenues whereas depreciation increases the revenues.

4. Poor Infrastructure: Greater communication facilities are necessary for software, ITeS, BPO to grow at faster rate.

Understanding the basic structure of the industry gives an insight into the options & scope of investments available into the sector. We discuss the various options of investment in the IT industry in our next blog