Indian IT poised for greater growth

A new variant of Covid-19, Omicron, is sending shock waves across the world. Originated in Africa after several mutations, the spread of the virus has forced many countries to impose travel bans, while some nations in central and western Europe went in for partial lockdowns.

Against this backdrop, old questions related to the digital transformation journey of organisations have come to the fore. It is important to note that the pandemic has accelerated the pace of digital journey of enterprises. Many felt during several past waves of the pandemic that without digital interfaces, their very existence would become questionable. Therefore, most organisations across the spectrum - be it small or large - have started spending on digital initiatives. From cloud migration to digital payments, from building up apps to leveraging various digital technologies, enterprises have travelled a long path in a relatively short span of time.

It is pertinent to note that any rise in the spread of new variant will only further accelerate this pace, instead of slowing it down. Global consultancy giant McKinsey has predicted that technology spend is expected to increase to five per cent of enterprise revenue over the next 5-10 years from 2-3 per cent as of now. So, this process seems irreversible. Similarly, Gartner estimates that IT services spending would grow by 8-8.5 per cent in the next four years as compared to the average of 4.2 per cent achieved over the past 10 years. Forecasts indicate higher demand for cloud infrastructure services, a potential increase in specialised software, potential investments in transformation projects by clients, and increased online adoption across verticals.

Such rising spend estimates augur well for Indian IT industry. Both large and mid-tier IT services companies have already benefitted from this increased spend in the last three quarters. Swift adoption of remote working model sans any operational disruption has proved the Indian IT industry's resiliency. As an outcome, we have seen offshoring (the portion of IT work that is executed outside of client geography) has improved in the past quarters. More companies are willing to outsource to India amid the pandemic. So, any new wave will buttress India's standing as an outsourcing destination. Apprehensions have crept in regarding the sustainability of the revenue growth rate of Indian IT firms in recent time. Though some of the hyper demand seen in recent time is likely to taper, most spends are likely to continue.

Every crisis brings in some permanent change in consumer behaviour. The current crisis is no exception. And the shift in the current time is towards digital adoption. Such adoption of digitalisation, therefore, is not going to change in coming years. When the long-term trend is so favourable, Indian technology industry will definitely cash in from these emerging opportunities. It not only includes Indian IT services providers, but also internet startups, SaaS companies and many more. This optimism has already reflected in the share prices of Indian technology firms. Thus, from the perspective of a defensive play coupled with sound prospects, these companies are emerging as the favourites of the market participants.