IT: Indias Crown Jewel

Statistics: The only science that enables different experts using the same

figures to draw different conclusions.

Statistician: A man who believes figures dont lie, but admits that under

analysis some of them wont stand up either.

The definitions of statistics and statisticians succinctly sum up the

figures for the Indian IT industry in FY10. Though a 7% growth (in rupees terms)

would not excite analysts used to 20% or more growth rates (last year it grew

19%), what the numbers do not reveal is the resilience of the industrythe gains

it had made over the years, the brand equity it has built and most importantly

the capabilities it has developed that relatively insulated it from the impact

of the worst global recession in recent memory.

While the emergence of the IT sector as Indias sunrise industry was a direct

fallout of globalization, ironically in FY10 it was globalization that came back

to haunt it. The slowdown was basically an US economic recession that spread

the world over because of globalization. The good news was how the Indian IT

industry emerged relatively unscathed; from whatever angle you look at, be it

the 7% growth in rupee terms or a more realistic 5% growth in dollar terms

(perhaps more suitable in this era of globalization), these results in a

recessionary year were quite encouraging.

The domestic sector grew 9%, while exports recorded a 6% growth, in rupee

terms. Quite understandable, considering that exports were predominantly

dependent on the US and Europe--economies which bore the brunt of the recession.

The domestic share (33%) of the overall pie continued increasing, albeit by a

single point only. And despite the slowing down of the domestic growth rate

(from 12% the year before in FY09), the resilience of this Rs 121237 crore

industry ensured that more and more global MNCs were keen to take a share of the

pie.

CyberMedia Research DQ Estimates

The obvious corollary of this trend was companies depending primarily on

exports saw a lesser growth as compared to those selling mostly in India. No

wonder, therefore that the domestic market continued to be the favorite catch

phrase of the IT industry, though only a handful of those export services

players who tried their hands in this market actually managed to crack it. No

wonder therefore that companies like HP, Microsoft, SAP, Oracle and Intel grew

much more in India than they did globally in FY10.

But the real spectacular story of last year was the rise and rise of both

Tier Two distributors as well as the regional distributors. Not only did two of

them gatecrash into the DQ Top50 club, but most of them registered high double

digit growths. And when you combine this with the average showing of the two

distribution GoliathsIngram Micro and Redingtona more interesting story

emerges. What at Dataquest we have been calling the transformation of the

domestic IT industry from India to Bharat seems to have finally materialized

in FY10.

Democratization was the catchword of the UPA government in its first stint;

it has been replaced by inclusion in this term. Whatever be the phraseology,

the Bard of Avon would have said that not much matters, whatever be the name.

The growth of regional distributors in the upcountry market not only means that

the domestic market has grown, but the IT industry has finally penetrated the

Indian hinterland.

Nothing illustrates better the impact of the wild currency fluctuations in

the last few years than the growth patterns shown by the Indian IT services

exports industry (in both rupees and dollar terms). The last normal year was

FY07 when the relatively stable currencies meant at par rupee and dollar growths

at 40% and 37% respectively.

The two subsequent years saw first the rupee appreciating strongly against

the dollar and then in a 180-degree turnaround it was the dollars turn to

appreciate strongly against the rupee. Result: while the sector recorded 26%

growth in rupee terms both in FY08 and FY09, the dollar growth swung from 40% to

10% over twelve months. Intense currency hedging by most players in the industry

took its tollHCL Technologies who hedged over a billion dollar was still

writing off its losses in FY10.

Nevertheless, the resilience of the sector shone through as it survived the

currency swing and was eagerly waiting for normalcy to resume in FY10 on the

currency front. That did ultimately happen as after a strong round of

appreciation, the dollar did stabilize against the rupee. Unfortunately, it

coincided with the worst economic recession in living memory in the US, still

the predominant market for Indian IT services exports, and its global

repercussions; so though the rupee (5%) and dollar (3%) growths were again at

par (after FY07), the measly rates took away much of the sheen.

CyberMedia Research DQ Estimates

The hangover of the fear and uncertainity meant cautious enterprise spending. But investment by government and SMBs ensured growth

The recessionary impact had positive effects on many exports companies. Most

realized that growing bottomline was possible not just by growing revenues but

by being efficient as well. As a result, operating margins improved drastically

for many and despite flat growths, many had significant growth in net earnings.

That way, the slowdown was a great leveler between the companies in India and

those in mature markets.

The $78.1bn IT industry in FY10 is definitely Indias crown jewel. But when

will this industry cross the $100bn mark? Common sense tells by 2015, it should

breach the magic threshold. However, Dataquest feels that the challenge for the

IT industry would be to do so in three years. Its not unrealistic or a

pipedream to think that IT industry would reach $100bn by 2013. The domestic

consumption is bound to increasegovernment and SMB spending was high in FY10

too; normalcy is soon to be restored in large enterprises who will push the IT

spending further. And exports, though already mature, would still grow as US and

other geographies increase the quantum of outsourcing. Sectors like

entertainment and engineering services too are expected to boost it further.

At $78.1bn, the IT industry constitutes 6% of Indias GDP. It favors very

comparably with most other developing countries and even the developed nations.

The likes of Schumer might call Indian companies chop shops but that in no way

takes anything out of their achievements. The Indian IT industry has really made

all of us Indians proud around the world. Jai Ho!

Rajneesh De



rajneeshd@cybermedia.co.in