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INFORMATION TECHNOLOGY
Current view
q The IT services industry has likely returned on a high growth path after experiencing
low growth over the past two fiscals. This is on the back of a revival in
spends - both discretionary and otherwise - by clients. Budgets in CY11 are expected
to be higher v/s CY10. NASSCOM has estimated an 18.7% growth in
exports in FY11 and 16 - 18% growth in FY12. Domestic revenues are also expected
to rise fast at 15 - 17% in FY12.
q However, the evolving global economic scenario and revival in demand has also
brought about challenges. Attrition is one of the biggest challenges being faced
by the industry, especially the mid-tier and small companies. With larger companies
turning aggressive recruiters, smaller companies are facing higher attrition
and pressure on salaries. Exchange rate volatility has also been high, once again
impacting the smaller companies more, which do not have adequate expertise
to tackle the same.
q The industry is expected to provide direct employment to 2.54mn people, a
growth of 10%, in FY11. In this backdrop, the budget is expected to focus on
maintaining an environment conducive to the future growth of this largely export-
oriented industry. The sector has asked for an extension in the tax holiday
(under section 10A/10B of the Income Tax Act, 1961) beyond FY11. Reduction
in MAT rate is also on the wish-list of the industry, though we do not expect
this demand to be fulfilled.
q We expect the focus of the budget to be on enabling issues like promoting
higher technical education (so as to meet the potential demand for employees
from the sector), promoting better infrastructure facilities in Tier II cities and
other related issues like skills development. Several operational issues on service
tax refunds, etc are also expected to be addressed.
q We remain optimistic on the longer term prospects of the industry. The Global
Delivery Model has gained significant acceptance among existing and potential
clients. We believe that, the outsourcing and off-shoring story will gather further
steam in the future and this will see an increased flow of longer term and
larger contracts to Indian vendors. Also, focused smaller companies with expertise
on select verticals will be able to move up the value chain and attract larger
clients, thereby, improving their longer term prospects.
q Stock prices of most IT companies have out-performed the markets in the recent
past, in line with the improvement in demand environment. We expect the
sentiment towards the sector to remain positive and the sector to provide decent
returns over the medium term, subject to near term volatility. At current
levels, we prefer larger names like Infosys and TCS; we also retain our positive
bias for select mid-caps like KPIT Cummins, Mphasis and NIIT Technologies.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
INFORMATION TECHNOLOGY
Current view
q The IT services industry has likely returned on a high growth path after experiencing
low growth over the past two fiscals. This is on the back of a revival in
spends - both discretionary and otherwise - by clients. Budgets in CY11 are expected
to be higher v/s CY10. NASSCOM has estimated an 18.7% growth in
exports in FY11 and 16 - 18% growth in FY12. Domestic revenues are also expected
to rise fast at 15 - 17% in FY12.
q However, the evolving global economic scenario and revival in demand has also
brought about challenges. Attrition is one of the biggest challenges being faced
by the industry, especially the mid-tier and small companies. With larger companies
turning aggressive recruiters, smaller companies are facing higher attrition
and pressure on salaries. Exchange rate volatility has also been high, once again
impacting the smaller companies more, which do not have adequate expertise
to tackle the same.
q The industry is expected to provide direct employment to 2.54mn people, a
growth of 10%, in FY11. In this backdrop, the budget is expected to focus on
maintaining an environment conducive to the future growth of this largely export-
oriented industry. The sector has asked for an extension in the tax holiday
(under section 10A/10B of the Income Tax Act, 1961) beyond FY11. Reduction
in MAT rate is also on the wish-list of the industry, though we do not expect
this demand to be fulfilled.
q We expect the focus of the budget to be on enabling issues like promoting
higher technical education (so as to meet the potential demand for employees
from the sector), promoting better infrastructure facilities in Tier II cities and
other related issues like skills development. Several operational issues on service
tax refunds, etc are also expected to be addressed.
q We remain optimistic on the longer term prospects of the industry. The Global
Delivery Model has gained significant acceptance among existing and potential
clients. We believe that, the outsourcing and off-shoring story will gather further
steam in the future and this will see an increased flow of longer term and
larger contracts to Indian vendors. Also, focused smaller companies with expertise
on select verticals will be able to move up the value chain and attract larger
clients, thereby, improving their longer term prospects.
q Stock prices of most IT companies have out-performed the markets in the recent
past, in line with the improvement in demand environment. We expect the
sentiment towards the sector to remain positive and the sector to provide decent
returns over the medium term, subject to near term volatility. At current
levels, we prefer larger names like Infosys and TCS; we also retain our positive
bias for select mid-caps like KPIT Cummins, Mphasis and NIIT Technologies.
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