Indian Economy News

IT services sector to resume growth in 2021-22 on digital demand: Fitch Ratings

  • IBEF
  • October 7, 2020

Fitch Ratings said in a new report that the Indian IT services sector is likely to resume high single-digit revenue growth in 2021-2022 on higher demand for digital transformation.

According to Nasscom, on average, industry-wide revenue decreased 6 percent q-o-q in Q2 FY20 as project execution was impacted by lockdowns and demand dropped amid market disruption. Sectors such as aviation and hospitality have undergone significant downturns and reduced their IT spending dramatically.

The report stated, “The impact of the coronavirus pandemic is likely to be only moderate and “short term", as customers focus on transforming their businesses digitally, moving services and work platforms online, and minimise spending on legacy services".

It is expected that the industry will take advantage of its low-cost activities and retain its strong presence in the global IT market. As it primarily serves US and Europe-based customers, it will continue to remain export-driven.

According to the study, companies are likely to step up their efforts to keep their companies alive by providing cloud-based online services and online job platforms. Research firm Gartner has projected that revenue from the Indian IT services market will rise by a 10 percent CAGR and hit $350 billion in 2025.

Fitch assumes that digital organisations, such as automation tools and cloud-based service delivery, are expected to perform better than those with a reliance on IT services.

For the IT services industry, revolutionary innovations such as big data analytics, cloud computing, and machine learning will become new growth drivers. "We believe that Indian IT services companies will benefit by helping their clients achieve automation, implementing cloud services, moving online products and processes, and enhancing digital channel customer experiences," the report said.

Fitch assumes that it would not impact sales growth, despite over 90% of the employees of most IT companies working from home (WFH), as most businesses have recorded a smooth transition to WFH.

In the longer term, effective WFH initiatives can suggest greater offshoring, as they provide clear evidence that projects can be delivered remotely.' We assume that the billing rates are 3-4 times higher for onsite work than for offshore work. As a result, a higher percentage of offshore projects may affect the rate of revenue growth of the industry,” the report said.

In the longer term, effective WFH initiatives can suggest greater offshoring, as they provide clear evidence that projects can be delivered remotely.' We assume that the billing rates are 3-4 times higher for onsite work than for offshore work. As a result, a higher percentage of offshore projects may affect the rate of revenue growth of the industry,” the report said.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.

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