BHUBANESWAR: The growth of IT services companies has considerably slowed down at 3.9 per cent during the fourth quarter of FY18 as compared to previous years, rating agency ICRA said in a report.
The lower growth was mainly due to the rupee appreciation, lower demand led by an uncertain macroeconomic environment, lower deal sizes in digital technologies, cloud adoption and high competitive intensity from local as well as international players, said Gaurav Jain, Vice-President, ICRA Ltd.
According to an ICRA note, IT firms are expected to register compounded annual growth rate (CAGR) in mid-to-high single digits for the period FY18-2021. “In future, growth will be supported by higher spend on digital technologies with larger deals spanning enterprise-wise digital transformation, improving discretionary spends, continued cost benefit offered through outsourcing model and market share gains,” Jain said.
He added that large IT companies is likely to grab a higher share of the digital services space over the next three years. These companies are in the midst of re-orienting their business models focusing more on higher-end services such as IT consulting and emerging technologies, even though they still lag behind international peers.
The share of Indian players in Global IT sourcing market stood at 67 per cent in 2017.
While spending on digital technologies and awarding new contracts soared significantly, the overall IT budgets have moderated leading to lower incremental spends.
In terms of verticals, growth of Banking & Financial Services has been muted over the last few quarters. “Demand for the sector has been adversely impacted by current macroeconomic conditions impacting the banking industry including sustained low-interest rates, continued focus on cost optimization and managing their discretionary spends,” said Jain. However, insurance sector has seen good growth led by modernising of legacy systems and is supporting the overall growth for BFSI which contributes 30% of ICRA’s sample set revenues.
Highlights of ICRA report
The aggregate growth of Indian IT services companies was at 3.9 per cent during the fourth quarter of FY2018 compared to 4.2 per cent growth in last fiscal, FY2018.
IT services companies are expected to register compounded annual growth rate (CAGR) in “mid-to-high single digits” between FY2018-2021.
Future growth will be supported by higher spend on digital technologies with larger deals spanning enterprise-wise digital transformation, improving discretionary spends, continued cost benefit.