Indian IT Firms Have To Focus On Domestic Enterprises For Growth

Nifty IT index has been witnessing a roller-coaster ride in recent months. It has been down around 13 per cent so far this year. However, the index has been up around six per cent in the last one month. Such rise and fall indicates that investors are not sure of its direction in the near-term owing to the uncertainties associated with the IT sector. This uncertainty has come from the tariff imposed by the US on its trading partners. Though the US administration has paused it by 90 days, there is no certainty that it will be able to negotiate trade deals with all its trading partners. This means that the macroeconomic uncertainty is likely to stay for most parts of this financial year. Against this backdrop, investors are worried that Indian IT firms may not be able to post good revenue growth owing to a likely slowdown in the US economy. Notably, large IT firms draw around 30 per cent of their revenues from the US, while some mid-tier IT companies are drawing about 50 per cent of their revenues from the world’s largest economy.

Given such dependence on the US, any slowdown in its economy doesn’t augur well for Indian IT services providers. Already, deal flow in the April-June period of the ongoing financial year has taken a hit as shown by deal tracker. No wonder, such a sentiment is already getting reflected in the Nifty IT index, showing nervousness among investors. Amid the negative flow, there is a silver lining Firstly, as US policies go through an overhaul, it gives an opportunity for Indian IT services providers to look beyond the US. There is no doubt that Europe, Latin America and APAC (Asia Pacific) regions contribute significantly to their revenues, but this focus has to intensify. Searching for new geographies will mitigate the risks arising from concentration on the US. Secondly, India has surpassed Japan to emerge as the fourth largest economy in the world. If the current GDP growth rate is sustained, India could be the third largest economy in the next three to five years. This definitely throws open myriad opportunities for Indian IT firms.

Reports indicate that India as a geography will see maximum IT spending growth in 2025 and beyond. As enterprises adopt technology, it creates a good opportunity for Indian IT firms to be their digital transformation partners. It has been seen that many top and mid-tier IT firms don’t give much emphasis on Indian market because of the small size of IT contracts. Moreover, as deals are priced in rupees, margins tend to be lower from Indian contracts. This is why many IT firms neglect India. Meanwhile, global IT services providers like Accenture, IBM and others have a dominating presence in India. Such phenomenon has to be changed. Indian IT firms should take every step to be dominating players among domestic enterprises. This will not only give them an assurance of stability but also put them in a good position for future growth. In the medium to the long run, Indian IT firms have to diversify their revenue sources along with lowering of their margins. This will ensure stability to their portfolio apart from ensuring growth.