IT negotiates a tight corner

Jan 28 2013, 02:50 IST
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SummaryStrange as it may seem, drawing up a standard for the Indian IT industry has become a difficult task.

The combined revenues of the top-four players in the sector grew by over 16% year-on-year, while profits showed an increase of 18%. However, this is not anywhere close to the quantum of growth the industry has achieved in the past

Strange as it may seem, drawing up a standard for the Indian IT industry has become a difficult task. While the common concerns are slowdown in client decisions, pricing decline, currency issues and margins, the impact on each has varied. With differentiation in services and customer concentration coming into play, the sector’s dynamics are changing. Long-term focus of the country’s software services biggies hinges on growing newer technologies such as cloud, mobility, big data and social media, which are at present small contributors to the overall revenue.

IT majors are also giving geographical spread a serious thought in addition to the focus on newer offerings and high margin businesses such as consulting and analytics. During the October-December period most of the top-tier players recorded robust growth beyond its traditional key markets US and Europe, which account for close to 80% of the country’s IT export revenue.

Infosys recorded a bumper 44.7% sequential growth in India domestic business, while rest of the world grew 7.4%. For India largest IT company TCS, India grew 4.8% sequentially. Wipro posted a growth of 3.7% in India and Middle East quarter-on-quarter. Though companies are trying hard to reduce its concentration on America for their revenue, it will continue to be a telling factor for the industry. Currently Infosys derives 61% of its revenues from north America, while for TCS it is 53%. Wipro gets under 50% revenues from the continent.

“The sector has been vehemently focusing on diversifying its geographical risk by reducing its over dependency on US and Europe. The effort has paid-off to some extent with a slight increase in the share of revenues (8.4% in FY06 to 9.8% in FY12) from other emerging geographies like Asia-pacific, Philippines, Africa,” said Sanjay Dhawan, leader —technology, PwC India, adding that this might not be good enough for the sector to completely insulate itself from any turmoil in key markets like US and Europe.

“But the share from emerging geographies is likely to go up further in the coming quarters. And through proper risk mitigation and hedging strategies, the impact of currency fluctuations can be combated to a certain extent,” he added.

December quarter, traditionally the weak period for the $70 billion

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