BENGALURU: India’s IT services industry is expected to double down on its digital revenues in 2021 due to a massive demand from the enterprises for services, including cloud, cybersecurity and remote work. Although the top players in the $191 billion tech industry may have missed their margins and revenue targets for FY21, the disruption due to Covid lasted only the first quarter (April-June, 2020) and a majority of the firms were right back on the track from the second quarter which saw the highest sequential revenue hike.
Besides, companies like Infosys and HCL Tech have increased their revenue and margin guidance for the remaining part of the fiscal year anticipating quicker recovery in business on the back of strong demand in digital services. The sector has not only shown resilience during a crisis like Covid, but has also kept the essential services running with their deep tech innovations and platforms.
Top analysts have placed their bets on IT majors as well as the industry’s mid-cap firms for the next year, with more demand in key segments and a change in administration in the US, with a likelihood of a relaxed H-1B visa regime in place.
However, the top tech CEOs have also sounded an alarm over the rising cases of mutant Coronavirus in key client geographies of the US and UK, which may be a headwind for the revenues. Both Infosys and Wipro announced billion-dollar deal clinches last week from Germany’s major firms – multi-year contracts which will also involve upksilling of thousands of employees. Salil Parekh, CEO, Infosys, said the IT transformation wave initiated by Covid will continue to drive the business of service providers, however, caution is needed because of the situation in the UK and US.
Currently, with over 95 per cent of employees in the IT services sector still working from home, the top tech CEOs have said that the productivity has still remained top-notch which has led to increased confidence among the clients. The IT sector has also been one of the few industries which announced salary hikes/promotion cycles from October onwards and has onboarded thousands of freshers remotely, while stressing on an increased employee engagement. The attrition rates for top tech four firms have fallen year-on-year in Q2, FY21, and upskilling of the employees has also been a key focus area.
The cash-rich firms are eyeing acquisitions of smaller companies in niche verticals to strengthen their businesses at a time when the valuations of the companies have dropped drastically. TCS earlier this month announced that it will acquire 100 per cent shares of Deutsche Bank’s IT unit, PostBank Systems AG, for an undisclosed sum. This was almost akin to the company’s acquisition of Citibank’s Business Process Outsourcing unit during the global financial crisis of 2oo8-09. Peers like Infosys and Wipro have also acquired smaller firms in health-tech and cloud spaces.
Startups to see renewed interest from investors
Startups was one of the worst-hit sectors by Covid and later the Chinese fund block, but many companies which were able to bag big investments in 2020 are eyeing to go public next year and list on stock exchanges in India. The list includes unicorns like Flipkart, Zomato, Zerodha, Nykaa, PolicyBazaar among several others.
Despite the hurdle in Chinese investments, the funding from countries like the UK, US and Middle-East is expected to spur the startups, which have deep tech solutions and can expand globally. Investors are likely to lay their bets on sectors like edtech, e-commerce, software as a service and health tech spaces, although the vaccine development also presents tailwinds for sectors like hospitality and travel.
2020, as per the research firm, Traxcn, saw $11.4 billion investments in startups with a cumulative 1,152 funding rounds and the birth of 12 unicorns. The Traxcn report suggested that the decade has seen an 8x growth from a tiny $1.4 billion in 2011 to more than $11.4 billion in 2020 in terms of the total funding raised by the startups. Some of the biggest cheques of the year were written for startups like PhonePe ($700 million), Byjus ($800 million), Zomato ($660 million) and FirstCry ($300 million). The top markets were online test preparation, food delivery, e-gaming, digital wallets and content platforms.
95% IT employees still working from home
Top sector analysts have placed their bets on IT majors and the industry’s mid-cap firms