Sunday , 23 September 2018
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Is India’s IT story still valid?

 By Tensing Rodrigues*

 

India’s info tech (IT) story is not new. Back in the early 1990’s, India’s teeming multitude of software and computer professionals constituted a pool of talent that was awaiting an opportunity. An added advantage was the ability to work in English language. And that opportunity came just before the turn of the last millennium in the form of the Y2K problem– the need to get all computers ready for the new millennium. The Y2K induced talent was a temporary surge in demand, and not very skill intensive. But what began as an insignificant flash in the pan was destined to set the global outsourcing business on fire.  Perhaps what drove the upsurge was the cost advantage as the Indian IT professionals pool offered value for money to the global businesses.

By last year, India’s IT and business process management (BPM) sector accounted for almost half of the world market at about US$ 150 billion. Indian IT companies served about two thirds of the world’s Fortune 500 companies. But in the last two years doubts have been raised about the sector’s future triggered by the constraints on global growth and the rising cost of Indian IT and BPM services vis-a-vis the competitors. But Melissa Cyrill of Dezan Shira & Associates, Hong Kong, feels that this does not mean much, as India still retains its edge, as the country offers an advanced technology, focused infrastructure, world-class outsourcing and software production capabilities and still comparatively low-priced labor supply given the skill set.

The IT sector in India does look stressed as it adapts to the disruption caused by emerging technologies such as automation, cloud computing, data analytics, social media, and machine learning. But, like the Y2K problem of three decades back, this is likely to work to India’s advantage. For its IT sector has the ability to learn, innovate and adapt to the changing scenario.

The industry leaders are strategically investing in these technological disruptions. Researchers in the industry estimate that by now India’s IT sector is spending approximately US$ 42 billion on cloud services, US$ 1.23 billion of which are spent on software as a service.

The thrust is led more by the country’s technology startups. India is already the world’s third largest base for tech startups almost 5,000 as of now, and expected to double by 2020. The analytics and big data industry in India is currently estimated to be US$ 2.03 billion, growing at a compounded annual growth rate of 23.8 percent whereas the public cloud services market in India is estimated to be at US$ 1.8 billion.

The International Data Corporation estimates that India will generate up to US$ 225 billion in SMAC (social media, mobility, data analytics & cloud computing) related revenue by 2020. One cannot deny the stress signs in the industry – perhaps the lay-offs are the most visible of those; as it upgrades to the next level of development, this is bound to happen. But these too offer an opportunity; companies engaged in providing the second rung services can effectively tap into this ‘excess labor’ at a competitive cost.

The moral of the story is that the Indian IT story is still interesting to the investor. It has changed the plot, not ended. In the process some players who have failed to change with the changing times are bound to lose their place. What that means to the investor is that she cannot bet blindly on the tag of IT; she needs to discern. There will be some laggards and some may lose out totally. Among the agile too some moves will pay off but some will not. So there can be temporary setbacks. Each investment needs to be therefore, judged by its own merit. But opportunities will be there galore. Also it means that the industry is now more suitable for the better entrenched among the investors, basically those with time, skills and resources at their disposal. In other words, this race is now for the marathoners, not sprinters.

*The author is an investment consultant. Readers can send their comments and queries to investment.ideas.shop@gmail.com

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