Ashok Soota
Chairman & Managing Director, MindTree Consulting
"No one is talking of a cut in US IT budgets and, at a time when there's a need for a bigger bang for the IT buck, we will make more inroads"
Every industry from time to time goes through cycles of macro-economic challenges. For the Indian IT/ITeS industry, it has been the sudden appreciation of the Indian rupee against the major world currencies, particularly the US dollar.
However, despite the 15-per cent plus appreciation, the industry leaders have done a commendable job of maintaining their profit margins, which I think is an indicator of the resilience of the Indian IT industry. If the rupee appreciates at a gradual pace of 3-4 per cent per annum in the future, I think the industry can cope with it through productivity gains, price increases and operational efficiency improvements.
Nowadays, we constantly hear about the impact of the US slowdown on the Indian IT industry, for instance, uncertainty regarding customers' IT budgets as the US economy enters a slowdown phase and sectors like banking and financial services (BFS) being hit by the sub-prime crisis.
What is perhaps not getting highlighted is the fact that there are no signs of any cuts in IT budgets in absolute terms.
The worst that analysts are predicting is slower growth in IT spending compared to 2007; but spending in absolute terms will grow nevertheless. Usually in such times, customers tend to expect more out of the actual dollars spend, which leads them to outsource and offshore more.
I believe that the Indian IT industry has an opportunity to make further inroads into the US market during the slowdown phase of US economy. Just so we know the facts, no major IT company has reported a fall in its revenues from the US or from BFS industry this year.
In terms of overall revenues, the industry continues to grow at 30 per cent annually in dollar terms, which is in line with the long-term projections from Nasscom.
The industry has added more than 100,000 people to its workforce during the first nine months of this financial year and made thousands of campus offers, based on the business pipeline.
One may note that there is a global market of $300 billion to be tapped, that there are regions in the world like continental Europe and Japan, which are still opening up to offshoring, and that India's advantage in terms of size of its talent pool and institutional maturity continues to be unmatched. The big picture tells us that we ought to be looking forward to a much larger opportunity for the industry.
The sharp currency appreciation this year affected the economics of the Indian IT/ITeS industry, which the market has already factored into the companies' stock prices. Going forward, there is no reason why the valuations should not reflect the prospects of continued growth and profitability of the industry.
Source : rediff.com
