IT Sector Rides On Cloud Nine
The technology industry in India is popular for its cutting-edge innovation and global success. And the fact that it has taken great strides with footprints across the globe has become more than evident from its unending success streak despite the pandemic and the negative effects of the lockdowns. As of now, the sector is on a huge recruitment drive, indicating better days ahead
India is a leading sourcing destination across the world, accounting for approximately 55 per cent market share of the USD 200-250 billion global services’ sourcing business in 2019-20. The IT industry accounted for 8 per cent of India’s GDP in 2020. Gradually, India is emerging as the hub for ‘digital skills’. Within the private sector, the IT industry is known to be the largest employer. In FY20, the industry employed over 4 million persons directly. Further, each job in the technology sector had a multiplier effect, leading to the creation of 2.5 indirect jobs in the adjacent sectors. In fact, India is transforming into a digital economy with over 750 million internet subscribers, only second to China.
Due to the lockdown restrictions, the IT and BPM sectors rapidly adapted to a remote work culture. During the global pandemic, the hiring inclination came with the benefits of work from home for more than 2 million IT professionals working remotely. In the global sourcing market, India’s cost-competi-tiveness in providing IT services, which is approximately 3-4 times more cost-effective than the US, continues to be its unique characteristic. Besides, the National Optical Fibre Network (NOFN) bears a focus to connect all 250,000 village councils in the country with high-speed broadband.
Market Size
On a global basis, estimation of revenue of the IT and BPM sectors is approximately USD 194 billion in FY21, which accounts for an increase of 2.3 per cent on a YoY basis. On a domestic basis, the revenue of the IT industry is estimated at USD 45 billion and export revenue is estimated at USD 150 billion in FY21. IT spending in India is estimated to reach USD 93 billion in 2021 indicating 7.3 per cent YoY growth whereas it will increase to USD 98.5 billion in 2022. If we look at the employment numbers in the IT industry of FY21, the BPM sector in India currently employs more than 1.4 million people while IT and BPM together have more than 4.5 million workers. On the other hand, the Indian software product industry is predicted to reach USD 100 billion by 2025.
The data annotation market in India stood at approximately USD 250 million in FY20, of which the US market contributed around 60 per cent to the overall value. The market is expected to reach approximately USD 7 billion by 2030 on the back of accelerated domestic demand for artificial intelligence (AI). The factor that has attracted significant investment from major countries is Indian IT’s core competencies and strengths. To look at the numbers, the computer software and hardware sector in India pulled cumulative foreign direct investment (FDI) inflows worth USD 71.05 billion in the period April 2000 to March 2021. The sector held a second position in FDI inflows as per the data released by Department for Promotion of Industry and Internal Trade (DPIIT).
In FY21, the computer software and hardware segments were leading in FDI investments, accounting for 44 per cent share of the total FDI inflows of USD 81.72 billion. Throughout the pandemic-struck environment impacting the economy, the IT sector has been performing quite healthily as compared to others. As illustrated in the table below, the IT sector has outperformed the Sensex with a decently wide margin in terms of recovery from the hit caused by the pandemic in March 2020. During this recessionary phase, the IT sector remained one of the least impacted in terms of hiring with all business going online. The demand for professionals in both software and hardware segments was witnessed to be steady with an upward month-on-month recovery.
As we have gone through the outperformance of IT index incomparison to benchmark indices, let’s have a look at the bigger picture depicting the top-performing IT stocks since the pandemic struck the economy. We can observe that the returns of the IT stocks have rallied up to 1,990 per cent since March 23, 2020 to September 17, 2020. The top stock on the list was Tanla Platforms which zoomed by 1,990.38 per cent. It was followed by Subex and Brightcom Group, each giving returns of 1,667.21 and 1,504.1 per cent. The following table highlights the top 10 IT stocks shining through the pandemic.
Throwing light upon the sector’s performance in 2021, around 53 stocks have doubled the investors’ returns so far in 2021. The returns have soared up to 1,064.78 per cent, the highest return bagged by Megri Soft, a commercial IT company providing web services for business since 1992. It was followed by Cressenda Solutions, Brightcom Group and Majesco gaining 564.29 per cent, 477.62 per cent and 443.83 per cent, respectively, in 2021 so far.
The technology industry in India is popular for its cutting-edge innovation and global success. However, in the last few months, passing through the second wave of the pandemic, the sector stood for one thing above all — its people and the continuous message from nearly every CEO was that the company would put the safety and wellness of its employees and their families on top priority. During last year when the cases had just started rising around April 2020, stringent lockdowns were imposed and the industry rapidly transitioned to a remote working model while keeping employee safety as its foremost concern. Over the last 14-15 months the industry has continuously focused on strengthening the remote working model.
The industry has opted for best practices on remote working and the lockdowns have not led to any hardships. Companies were operating at 90 per cent work from home in March 2021 and have rapidly transitioned to 98 per cent work from home. The model is extremely fungible, bearing constant investment in technology and process infrastructure. When we think of a distributed work model, we normally fail to envisage a distributed model over 150+ cities and towns in India and many internationally, but that has been the technology industry model for the last year.
Recent Trends in IT Sector
Of late the IT sector has been driving new hiring trends. In fact, IT sector jobs are being seen at an all-time high with hiring of skilled professionals increasing to 52 per cent from the pre-pandemic levels. The year-on-year (YoY) growth in hiring has been an approximately 163 per cent in June 2021. Cities like Bangalore, Pune and Hyderabad, where many IT companies have their base witnessed a double-digit growth in hiring activity, indicating a uniform revival of jobs in this sector. As of now, the IT sector is maintaining the uptrend of hiring activity with a continuous demand for skilled personnel.
Besides, it is not just jobs that are opening up. Companies are also offering higher pay packages in comparison to the previous year. IT giants such as Tata Consultancy Services (TCS) and Infosys are on a rapid hiring spree and offering salary hikes in the range of 70-120 per cent along with bonuses to new employees. TCS recently announced that it has started a recruitment drive for women professionals, particularly for those looking for job opportunities after a career gap. We would like to highlight some recent major developments in the IT sector:
✓ In July 2021, TCS expanded its strategic partnership with Royal London, the largest mutual life insurance, pensions and investment company in the UK, to help the latter transform its pension platform estate and deliver market-leading services to members and customers.
✓ In July 2021, HCL announced a multi-year agreement with Fiskars Group, consisting of a family of lifestyle brands including Fiskars, Gerber, Iittala, Royal Copenha- gen, Waterford and Wedgwood, for digital transforma-tion.
✓ In June 2021, Federal Bank expanded its strategic collaboration with Oracle and Infosys to offer enhanced customer experience through Oracle CX customer experience platform.
✓ In June 2021, Infosys announced collaboration with Archrock, Inc., a leading provider of natural gas com-pression services in the US, to integrate digital technolo-gies and mobile tools for its field service technicians.
✓ In June 2021, the International Chess Federation (FIDE) announced a new partnership with Tech Mahindra Ltd. to focus on creating together the Global Chess League, a project first proposed by Tech Mahindra.
Outlook
The fact that needs cheering is the demand environment for technology and digital solutions that continues to be very healthy. The quarterly results from leading companies have demonstrated that the deal pipeline is robust and the pandemic is emphasising on the need for every company to be a technol-ogy entity. The interest of investors in Indian technology start-ups is at an all-time high and additional businesses in India are building their online plus offline model. Demand for technology and digital talent continues to overpower supply and rapid re-skilling efforts by the industry in India are helping to address this shortage. Indian companies are keenly focusing on investing internationally to expand the global footprint and enhance their global delivery centres.
In line with this, in February 2021, Tata Consultancy Services announced its plan to recruit approximately 1,500 technology employees across the UK over the next year. This would build capabilities for TCS to deliver efficiently to its UK customers. Empathy, resilience, agility and adaptability continue to drive the technology industry in India and the experiences from thisphase are only connecting the industry closer to its most important asset – its people. The Indian IT industry is predict-ed to report a net addition of more than 2 lakh jobs in FY22 as top players alone had a net employee addition of more than 50,000 in the April-June quarter.
Leading Indian IT firms like Infosys, Wipro, TCS and Tech Mahindra are diversifying their offerings and showcasing leading ideas in blockchain and artificial intelligence to clients using innovation hubs and research and development centres to create differentiated offerings. In the Union Budget 2021, the government allocated Rs53,108 crore (USD 7.31 billion) to the IT and telecom sector. The Indian government is also undertaking several initiatives to promote the IT sector in India. Proving its capabilities in delivering both onshore and offshore services to global clients, the emerging technologies offer an entire new bag of opportunities for IT companies in India.