We expect wider and deeper acceptance of the global/onsite-offshore delivery model to continue to expand the addressable market opportunity for India-based IT players, providing ample room for growth in the medium term. More of the same, one can say - we agree; however, capturing this incremental growth would demand (1) subtle yet critical changes at the front-end and on delivery, and (2) staying ahead of the pack in technological discontinuities like cloud computing. We remain bullish on the sector with a Tier-I bias.
Growth not a constraint in the medium term
We do not see major constraints to growth in the next few years. Arguments against sustainable robust growth for the Indian IT services players (declining incremental addressable market, size constraint, MNC challenge etc.) are not new and neither is the debate. These arguments have been long touted and will continue to be. At some point, of course, each of these would become a growth constraint but not yet, in our view.
Growth driver the same; capturing incremental growth the real challenge
Increasing share of outsourcing within the global IT spending pie and of offshoring within the outsourcing pie has been a secular trend for the past many years and will remain so, for the next few, in our view. Even as the basic growth driver for the industry remains the same, the challenges to capturing growth keep changing in tandem with the evolving IT services landscape, its scope and size. Subtle yet critical changes spanning the service offerings portfolio, sales mindset, account management models, organization structure, supply-side management, new commercial models and other areas will need to be made. Also important would be the timely appreciation of technological changes like cloud computing.
Right decisions and right investments in a timely manner will determine relative winners
Even as we do not see a need for a structural change in the business model, subtle changes in the areas discussed above would be critical. Decisions that various companies make in some of these areas will determine their degree of participation in the incremental industry growth and longer-term competitive positioning.
Bullish stance with a Tier-I bias stays; growth outlook justifies seemingly rich valuations
We remain convinced of the medium-term strength of demand for the Indian IT services industry. We reiterate our Tier-I bias given better growth outlook and margin profile versus the mid-sized pack. Infosys and TCS are our top picks with Hexaware the lone mid-cap BUY.
Growth not a constraint in the medium term
We do not see major constraints to growth in the next few years. Arguments against sustainable robust growth for the Indian IT services players (declining incremental addressable market, size constraint, MNC challenge etc.) are not new and neither is the debate. These arguments have been long touted and will continue to be. At some point, of course, each of these would become a growth constraint but not yet, in our view.
Growth driver the same; capturing incremental growth the real challenge
Increasing share of outsourcing within the global IT spending pie and of offshoring within the outsourcing pie has been a secular trend for the past many years and will remain so, for the next few, in our view. Even as the basic growth driver for the industry remains the same, the challenges to capturing growth keep changing in tandem with the evolving IT services landscape, its scope and size. Subtle yet critical changes spanning the service offerings portfolio, sales mindset, account management models, organization structure, supply-side management, new commercial models and other areas will need to be made. Also important would be the timely appreciation of technological changes like cloud computing.
Right decisions and right investments in a timely manner will determine relative winners
Even as we do not see a need for a structural change in the business model, subtle changes in the areas discussed above would be critical. Decisions that various companies make in some of these areas will determine their degree of participation in the incremental industry growth and longer-term competitive positioning.
Bullish stance with a Tier-I bias stays; growth outlook justifies seemingly rich valuations
We remain convinced of the medium-term strength of demand for the Indian IT services industry. We reiterate our Tier-I bias given better growth outlook and margin profile versus the mid-sized pack. Infosys and TCS are our top picks with Hexaware the lone mid-cap BUY.
