News APP

NewsApp (Free)

Read news as it happens
Download NewsApp

Available on  gplay

This article was first published 8 years ago  » Business » IT sector enters the slow lane

IT sector enters the slow lane

By Krishna Kant
October 11, 2015 17:21 IST
Get Rediff News in your Inbox:

For top IT services firms, revenue growth in FY15 was the slowest since the Lehman crisis

The global slowdown is hurting India’s information technology (IT) services sector, its biggest export segment, with a sharp deceleration in the growth of the top IT companies, as global firms cut IT spends. Revenue growth in 2014-15 was the slowest in five years, and the trend has continued in the June quarter of 2015-16, too.

In the June quarter of this financial year, India’s top 73 IT companies, for which data is available for the past 10 years, reported revenue growth of 13 per cent on a year-on-year basis, against 13.5 per cent in FY15 and 24.7 per cent in FY14. In 2009-10, in the aftermath of the Lehman Brothers collapse, revenue growth had hit a low of seven per cent.

The slowdown in profit growth is worse — in the June quarter, the sector’s operating and net profits grew three per cent and 2.2 per cent, respectively, the slowest in a decade.

The revenue (in rupee terms) has also been hit by depreciation in the rupee against the dollar. For instance, in FY14, companies reported a fall in revenue and profit growth in rupee terms due to currency depreciation. But in dollar terms, the growth was close to volume growth.

For the quarter ended June this year, sector leader TCS reported volume growth of 4.8 per cent on a year-on-year basis and overall revenue growth of 9.3 per cent in dollar terms.

This is in line with the slowdown in India’s overall software exports. According to balance of payments (BoP) data from the Reserve Bank of India (RBI), in FY15, gross software exports decelerated for a fourth consecutive year, in constant currency terms. Last financial year, these exports were up 5.3 per cent in dollar terms, against 5.4 per cent in FY14 and 17.2 per cent in FY12.

This was the lowest growth recorded by the sector since FY01, when RBI began to report BoP data under a new format. Except 2012, software exports have seen single-digit growth every year since the 2008 Lehman crisis. Before that, growth in  software exports stood at 15-30 per cent.

Analysts blame the fall in revenue growth on a global slowdown. According to technology consulting firm Gartner, global IT services grew only 1.9 per cent in 2014; the sector is likely to contract 4.3 per cent this year.

“The pre-Lehman crisis double-digit growth in IT exports is well behind the sector and we expect more moderate growth going forward. Growth will largely be company-specific, as in any mature segment,” says Dhananjay Sinha, co-head (institutional equity), Emkay Global Financial Services.

Indian IT vendors have also been hit by a global trend of near-sourcing. “While the growth of global sourcing for services continues, buying patterns are changing and include the use of more local or near-shore resources for certain services,” David Brown, global head (shared services & outsourcing advisory) KPMG International, had written in a report.

The slowdown in IT exports is likely to further hit India’s growth prospects. The sector is the biggest foreign exchange earner for the country; surplus dollars from the likes of TCS, Infosys, Wipro and HCL Technologies fill the resource gap in capital-intensive sectors such as infrastructure, telecom and power.

“A slowdown in software exports will put pressure on the current account deficit and increase our dependence on foreign capital flows. That means more volatility in investment and growth,” says Sinha.

Get Rediff News in your Inbox:
Krishna Kant in Mumbai
Source: source

Moneywiz Live!