Pandemic positives for Indian IT sector; accelerating growth and demand are keeping them busy
A robust digital-transformation order pipeline will support the Indian IT services companies’ stronger revenue growth in 2021. IT services providers are concurrently evolving with this growth as well.
Anushruti Singh June 27, 2021
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Last year India Inc. witnessed far more digital maturity in their organisations than they were expecting.
Dell Technologies’ Digital Transformation Index 2020 tracked the rise in the number of digital leaders (most digitally matured) to 12.3 per cent. While digital adopters (second most matured) increased from 33.5 per cent in 2018 to 55.3 per cent in 2020.
During the pandemic, Indian businesses adopted tech solutions quickly, even those who were already tech-savvy. One of the main reasons for this was the pandemic; otherwise, digital transformation was on the five-year agenda of most Indian companies.
To keep up with the rapid pace of change, at least 94.7 per cent of Indian firms accelerated their digital transformation programmes, while 92.3 per cent re-invented their business models.
“Enterprises across all sectors started investing in digital transformation as the pandemic made it evident that businesses with higher digital adoption would fare better than the ones with traditional IT systems.” Harish Krishnakumar, Senior Market Analyst, IT Services at IDC India mentioned in a statement.
Apart from cloud adoption and IT security, he believes that in the second half of 2020, enterprises increasingly invested in technologies such as artificial intelligence, machine learning, and analytics for solutions such as conversational AI and Chatbots, fraud prevention, demand forecasting, and so on, to help streamline their business operations.
Even a sector like manufacturing, which was adversely affected during the initial stages of the pandemic, started investing in cloud-based applications and automation projects.
An inflection point for IT services
While these changes were taking place within businesses, Indian IT service providers were instrumental in assisting businesses on their digital journey. This aided in the expansion of the Indian IT and business services market. In fact, the market believes that the current situation represents a tipping point for them.
According to the IDC tracker, the sector was valued at $13.41 billion in 2020, representing a 5.41 per cent year-over-year (YoY) increase from 8.43 per cent in 2019. In fact, the IT services market contributed the most to this growth, accounting for 77.06 per cent of the total. It increased by 5.97 per cent in 2020, compared to 8.91 per cent growth in 2019.
Moreover, going forward, the market forecasts that the momentum for the IT services market will remain positive in 2021 because of increased IT spending by businesses in areas like cloud, application modernisation, artificial intelligence, automation, etc.
For instance, the top-tier Indian IT services companies, including Tata Consultancy Services, Infosys Limited, HCL Technologies and Wipro Limited, are set to record double-digit revenue growth in FY22, according to Fitch Ratings. Infosys and HCL are estimated to show a 12 to 14 per cent and double-digit constant currency revenue growth, respectively, in FY22, while TCS remains focused on achieving double-digit growth rates over the medium term.
Likewise, IT services companies similar to and outside of the top tier are experiencing growth and are optimistic about the year. In order to track this growth, SME Futures spoke with some of the IT services market players.
Vritti Solutions, for example, saw a threefold increase in registrations for their practise management software Simplify Practice, which enables WFH for professionals such as chartered accountants. In fact, the company’s revenue has increased by 2.5 times in the last year.
Talking about how last year turned out to be profitable, Veerendra Jamdade, Chief Executive Officer at Vritti Solutions Ltd comments, “We had an agreement with the Institute of Chartered Accountants of India (ICAI) for the digital enablement of its CA members using Simplify Practice. However, it was during the pandemic that the registrations grew three-fold. Similarly, our agreement with ICA Nepal was accelerated after the pandemic. All our Software as a Service (SaaS) businesses including petrol pump software (Petrosoft), software for agriculture commission agents (Adatsoft) and e-commerce app (Any Dukaan) showed a growth of more than 100 per cent.”
For Simplify Practice, they have 3600 new registrations compared to 1250 in the previous year. For Adatsoft and Petrosoft they acquired 350 new customers compared to an average of about 150-175 in earlier years, he added.
Another IT services firm C Ahead Digital which provides tech solutions and consulting to businesses, has grown significantly in India since last year and grew by 50 per cent in the last 18 months.
Sandeep Sekhar, Chairman & Global CEO of the company opens up on their global growth, “We gained over 70 per cent in terms of new clients and our portfolio has diversified largely into the healthcare and insurance domain, in addition to our already existing banking, telco and engineering space. Overall, C Ahead digital has grown by over 50 per cent in the last 18 months plus and expanded to new regions, mainly Australia and the EU,” he tells us.
Similarly, Avaali Solutions, a Bengaluru-based company that assists MSME businesses with their digital strategies, also saw a surge in traffic and new inquiries.
Srividya Kannan, Founder and Director, told us, “Our customer engagements have grown over 100 per cent in the previous year. We have won over 25+ new logos from large marquee brands in FY 2020. We are expecting to acquire over 75+ new logos this year in addition to increasing our share of the wallet from existing customers,” she reveals.
It’s a pandemic induced demand
The pandemic served as a wake-up call for Indian businesses.
They had to rethink and revise their IT strategies just to keep the impact of the pandemic at bay. As a matter of fact, organisations lacking a robust IT infrastructure were offline at the start of the pandemic last year.
Nowadays, every company recognises the importance of implementing an IT infrastructure that is both flexible and agile.
Due to greatly benefitting from the dynamic change in the market, IT solution providers give the credit for this to the advent of the pandemic. They unanimously believe it’s the main thrust factor for their growth.
“The last 15 months or so were very good for the IT and software companies in the country,” said Jamdade.
C Ahead’s Sekhar also adds that the pandemic gave an opportunity to the majority of the sectors to explore the digital way of working. “We have been experiencing an ever-increasing demand even from the not so tech friendly industries and the rest,” he professes.
Speaking for the overall sector, he said that it was particularly good for the IT & software services that enabled WFH. “That is why, there has been a massive shift in the demand for SMEs particularly in rural India to go digital. The rural SMEs are significantly shifting to web application from desk top application. Leaving aside the manufacturing shop floor, the rest of the operations are going online. The SMEs are increasingly adopting CRM and ERP. Whatever business process that supports WFH is turning digital. So, the outlook is very positive,” he added.
According to the IDC, for 2020, the managed services segment registered the highest growth rate at 6.85 per cent, followed by project-oriented services at 5.92 per cent, and support services at 4.51 per cent, respectively.
Their market analysis further states that in the past year, hosted application management and hosted infrastructure services witnessed higher growth. This was as multiple enterprises continued to move to the cloud. This growth is also attributed to the increase in demand for cloud services driven by the rise in remote working, online classes, and online streaming, amid the Covid-19 pandemic.
Shift in digital investments
Gartner revealed that businesses IT spending fell by 2 per cent during the first wave of 2020, as CIOs prioritised spending on critical technology and services over initiatives aimed at growth or transformation.
But times have changed.
Today there is a high demand for online IT solutions and online working platforms, which eventually entail increased IT spending. As a result of increased IT spending, opportunities for IT services and solution providers abound, opine the experts in this field.
“Enterprises that had postponed investments resulting from uncertainties during the initial stages of the pandemic and the pent-up demand coupled with the now growing budgets for digital is bringing in significant opportunities for revenue growth,” Kannan of Avaali Solutions comments.
Just for the record, Gartner’s most recent forecast tells us that the overall IT spending in India is expected to reach $93 billion this year. This represents a 7.3 per cent increase over 2020. Whereas IT services spending will rise by 9 per cent which amounts to around $16,793 million.
This excites the IT solutions providers even more.
Kannan comments on this growth, stating that the pandemic has accelerated digital spending as enterprises look to build resilience in processes and improve visibility. She says, “The sector is growing on the back of a significant push in digital investments by enterprises to bring down the cost of running their process, differentiate themselves and drive revenue growth. The share of digital revenues in this sector is expected to increase to over 50 per cent over the next three years from about 30 per cent of revenues currently.”
She claims that the Indian IT and BPM sector will account for more than 52 per cent of the country’s total services exports. “IT services companies that are able to leverage this opportunity by reducing the cycle time for deployments for their specific use cases and deliver faster will certainly benefit,” she adds.
On the other hand, while the IT services market’s growth has accelerated, the second wave of COVID-19 has had an adverse impact on service delivery. However, the impact is limited because revenue from India accounts for only 4 to 5 per cent of these companies’ total revenues.
At the same time, India Inc. is bracing itself for the third wave.
Kannan professes, “There are over 4.5 million people providing consulting and outsourcing services in this segment currently and absenteeism due to the impact of COVID-19 is likely to be about 6 per cent. Service providers are feverishly putting together a risk assessment framework and targeted action plan to take care of potential disruption.”
Despite green shoots, talent remains a challenge
Despite the optimism that the IT services and solution providers are experiencing, they are confronted with a slew of challenges as well.
One of the most significant challenges that these IT solution providers face is attracting the right talent. Even though India has a large talent pool, finding the right kind of expertise can be difficult.
Sekhar elaborates more on the issue, “Yes, talent shortage is one of the major challenges as IT companies are looking for a combination of skills in their teams and work from home setups are difficult to monitor but again are currently being done with monitoring tools to a great extent. Cyber Security is always a challenge, given the new working model and are mitigated continuously.”
A 2020 global survey conducted by ManpowerGroup revealed that 63 per cent of the IT companies claimed that there is a lack of talent.
Kannan adds, “The challenge and opportunity continue to be skills as there is a significant shortage of people who have a good balance of both functional and technological understanding of emerging technologies such as Source to Pay automation, ICR, RPA, workflow automation and analytics.”
Substantiating this concern, a latest report by Amazon Web Services (AWS) claims that India needs 9x more professionals with digital skills by 2025. If we go by the findings of the paper, an average Indian worker should develop at least seven new digital skills by 2025 to stay relevant and match the advancements made by technology due to the impetus of digitally run business operations and demand for IT services. According to the report, in the next five years, over 150 million new IT jobs will be created.
Growing competition in the market
Another challenge that IT services companies are facing is the tough competition in this field.
Start-ups and IT companies are mushrooming due to the loads of opportunities in the market. We asked the experts if this could pose a threat to the companies.
Commenting on the growing competition, Jamdade says, “Yes, competition is growing, especially from start-ups. However, companies such as us have an experience of decades. We have been here for more than two decades, with the kind of rural network, reach and penetration we have, that definitely counts. We can integrate our IT services with innovative and digital marketing, which positions us uniquely. I meant to say that if you can deliver a good product, with a great design at an economic budget, aided by marketing and promotions, there is no stopping you. Digitalisation is here to stay, grow and evolve. It cannot be missed by anyone.”
Whereas, to survive the competition in the market, Kannan opines that its always better to differentiate yourself from the others, and it can be done in various ways. Giving her company’s example, she elaborates her point thus, “We continue to stay niche in the space of providing digital operations for large enterprises via shared service / GBS. We are currently one of the largest providers in terms of the sheer number of implementations done in India for shared service automation. We do face competition from other players; however, we are able to differentiate ourselves due to the large number of successful client references and the market presence that we have.”
On the same note, Sekhar presents a different perspective on tackling market competition. According to him, it’s better to partner with them, “Start-ups and competition are always welcome. New ways and new products making it to the market are forcing us to innovate too. Also, our alliance model has helped us collaborate with start-ups and grow,” he avers.
While on competing with large vendors, he says, “Large IT vendors generally go for long term contracts. C Ahead Digital is a nimble and fast paced company – we offer the much-required speed, ease of engagement, access to great skills and flexible collaboration to our clients. Again, we play to our strengths and stick to it, where we can provide superior service at a competitive price vi-a-vis the large IT vendors.”
IT vendors evolved with the pandemic
Overall, the pandemic has been a blessing in disguise for India Inc.
As Jamdade opines, the digital adoption which the government and the industry were trying to achieve for the past 5-6 years has been accomplished in the last 12-16 months. He states, “The digitalisation process is going to continue as there is a deep concern within the SMEs that without digitalisation, one will be left out of the race.”
With this, the Indian IT services sector is now just a billion short of reaching $100 bn in size, growing at 2.7 per cent YoY.
This definitely is a growth thrust for the IT services sector.
And at the same time, this has pushed the IT companies to bring innovative solutions to the table. It is evident that almost all IT companies have evolved as far as their offerings and IT solution portfolios are concerned.
Kannan tells us that this has been a period of innovation and an impetus for all to step up their game, “Our portfolio has become more comprehensive and deeper in the areas of sourcing and procurement automation,” she further states.
“With our Velocious Source to Pay Platform, we are now able to significantly reduce sourcing and procurement costs for enterprises coupled with increasing governance and visibility in the processes. With deep expertise on various accounts payable Invoice automation solutions and RPA, we have now created a full lifecycle automation in the Source to Pay space. Our automation practice has matured significantly to combine automation good practices and help enterprises reduce maintenance cost for bots with a Centre of Excellence set-up. We now provide ready to deploy tools and templates and have created specific packages for the CoE set-ups,” she adds.
Similarly, C Ahead have been upgrading a lot in their portfolio as well. Sekhar tells us, “There are major developments on Blockchain, artificial intelligence, security and automation. The future is to have upskilled teams, major breakthroughs, and complete digital transformation. The pandemic is just the beginning of this digital transformation. We are empowering our current and potential clients and employees with new and emerging technologies/skills while accelerating our growth across various industries and are expanding our global footprint. We believe we will be one of the players to reckon with in the digital space in the near future.”
Considering the fact that the IT solution providers are highly optimistic about the future of the IT services sector, IDC India’s Research Manager, Enterprise Software and ICT services, Shweta Baidya estimates, “While the year 2020 pushed enterprises to focus on survival and business continuity strategies through cost takeout and cost optimisation initiatives, the year 2021 will pave the way for business resiliency plans to kick in and accelerated investments in technologies to support an enterprise’s digital goals,” she says.
Which means that the clear opportunities for service providers include cloud enablement and augmentation services, network management, optimisation and automation, managed security services, and AI-based services, among others.
Going ahead, enterprises will look towards their IT services partners to enable their digital transformation initiatives and prepare them to be future-ready enterprises.