As per estimates by the National Association of Software and Services Companies (NASSCOM), the Indian technology sector is expected to reach US $300-350 billion by 2025. A recent report by NASSCOM titled 'Future of Technology Services – Winning in this decade' highlights that India's technology services industry could accelerate growth by 2-4 per cent over the next five years, reaching $300-350 billion in annual revenues if it can win in the cloud, Artificial Intelligence (AI), cybersecurity, and other emerging technologies. This will require closer collaboration among stakeholders across the private sector, academia, and the government. It seems that considering the huge demand for digitisation by organisations across the globe and agility shown by the Indian IT services companies in winning multi-year billion dollar contracts, the sector is well on its path to achieve these figures.
The report observes that with the consumers' ever-evolving needs, enterprises are keeping up with continuous innovation, leading to a shifting global marketplace and 10 per cent annual growth in the IT services sector, generating high returns for shareholders and investors in the last decade. Being valued at roughly $1 trillion today, the technology services sector is now among the most significant contributors to economic growth worldwide, especially in India—the industry now produces about 27 per cent of the nation's exports and provides livelihoods to about 4.4 million people. The report highlights that with the government playing a more significant role in digital services, increased investment and innovation, and the rise of regional power centres dominated by local players, businesses and the industry will see a massive transformation in the next decade.
The NASSCOM report observes that fueling over 50 digital initiatives across sectors like banking and finance, healthcare and governance, the technology services industry continues to be a prime driver of India's digital dream with a contribution of 8 per cent to the overall economy. With the ongoing pandemic and the pace at which almost every sector has accelerated their digital transformation journeys, the increasing cloud consumption and other digital services like Artificial Learning (AI) and Machine Learning (ML) are making way for the digital and cloud services, with an opportunity to reach $600-700 billion by 2025. Coupled with cybersecurity and IoT digital spending, the technology services are expected to reach $300-350 billion in revenue by 2025. The report also points out that the next decade will continue to witness growth in technology spend.
“The Indian technology services sector can utilise the potential of deep technologies like cloud, artificial intelligence, machine learning, IoT, etc., through effective transformational practices, thereby contributing to the overall economy in the coming decade. The government needs to encourage and support digital literacy and skilling to ensure its talent, energy, imagination, knowledge, and unmatched commitment unites to address the customers' surging needs,” said Debjani Ghosh, president, NASSCOM.
The Indian technology services sector is well positioned to achieve the estimated revenue growth. To corroborate this further Indian IT services companies exhibited healthy revenue growth in the third quarter of the last FY 2020-2021. It reported one of its strongest third quarters in the past five years and delivered a quarter-on-quarter (QoQ) revenue growth of 4.9 per cent. Interestingly the growth was primarily driven by increased technology spends across all key industries, (despite adverse seasonality), pick-up in deal sizes and faster conversion from pipeline to orders.
As per a report by Motilal Oswal, 2021 also looks positive for the Indian IT services companies with an increase in deal Total Contract Value (TCV) and pipeline across companies. Demand for multi-year digital and cloud transformation projects from clients is expected to further improve the long-term visibility in the IT services space. The recent deals and acquisitions by Indian IT services firms such as TCS acquiring Postbank Systems and Pramerica, Infosys's deal with Rolls Royce and Daimler, and Wipro clinching the Metro AG deal suggests higher offshoring intensity and cost take out, indicating higher comfort with offshore delivery by large customers.
It is expected that there could be multi-year deal wins for Indian IT services companies in cloud migration, digital transformation. Customers are expected to normalise their budgets to increase spending on digital transformation. Going ahead, there could be a healthy order book for the Indian IT services firms.
“Indian IT industry has achieved very clear stratification so far as the scope of value addition goes. While the established players have a strong momentum going for them, there is a sliver of companies operating at the bleeding leading edge of innovation, that in many domains, will propel innovation and solve hard automation problems. This combination of steady revenue growth on the one hand and on the other, the non-linear revenue with significant innovation will act in tandem for Indian IT to shine on the firmament,” said Alok Shende of Ascentius Consulting.
