Indian IT Services companies (13 sample companies) achieved 3.9 percent or 9.7 percent in US$ terms growth during Q4FY2018 compared to CAGR of 17.1 percent experienced over the FY2013-2017 period and 4.2 percent growth in fiscal FY2018.
The lower growth was due to the INR appreciating by approximately 4 percent versus US$ during the quarter.
ICRA note said Indian IT Services companies are expected to register compounded annual growth rate (CAGR) in mid-to-high single digits for the period FY2018-2021.
The share of Indian players in global IT Sourcing market stood at 67 percent in CY2017 against 60 percent in CY2012.
Indian IT Services companies are in the midst of re-orienting their business models focusing more on higher end services such as IT consulting & emerging technologies (digital) and have made considerable progress so far, though they still lag behind international peers.
“We expect large Indian IT companies to grab a higher share of the digital services space over the next three years,” said Gaurav Jain, vice president at ICRA.
The demand for IT among BFS (Banking & Financial Services) sector has been adversely impacted by current macroeconomic conditions impacting the banking industry including sustained low interest rates, continued focus on cost optimization and managing their discretionary spends.
The BFS segment growth is supported by digitization efforts, cost optimization, regulatory, compliance and security driven initiatives. The insurance sector has seen good growth led by modernizing of legacy systems and is supporting the overall growth for BFSI which contributes 30 percent of ICRA’s sample set revenues.
The manufacturing verticals (17 percent of ICRA sample set revenues) outperformed other key verticals with 5.8 percent growth in FY2018 led by automation including internet of things, analytics, optimising supply chain and enhancing distribution channel effectiveness.
Indian IT industry’s operating margins have moderated from 24-25 percent to 22-24 percent over the last few quarters.
The IT services industry is driving efficiencies through deployment of operating levers such as higher share of fixed price contracts, lesser idle resources and automation benefits. These factors will provide limited cushion leading to overall decline in margins from 23.5 percent in FY2017 to 21.2 percent in FY2020.
