April 13 2018: The latest Update to the HDFC Securities Report on IT Sector, titled " Skin in the game" suggests that the India Information Technology sector is at an inflection point, following a prolonged deceleration.
Its view is based on:
Up-scaling the value proposition (digital-at-scale, pipeline, partner eco-system),
Accelerating demand environment (improving macros, contract trends, rebid opportunity) and market-share gains (full-service portfolio, offshore leverage, large deals),
Strong operational metrics (new logo addition and midcap IT’s large account scalability, favourable supply metrics), and
Strength in balance sheet and cash generation.
Indian IT has gained overe 15% share of global IT services business over the last ten years. The study expects the sector (tier-1 IT) to grow at 1.4 times the global IT services. NorthAmerica and Europe continue to be dominant markets for the sector at 61% and 30% of revenue respectively, even as Europe has outperformed recently. Revenue-share of tier-1 IT (vs. large global peers) has increased from 11% to 27% over the past ten years.
The digital component in the business mix is now large enough ( more than 23% of revenues) to drive growth at close to double-digit in the fiscal year 2019-20 with 33% CAGR in digital and 1.1% CAGR in legacy.The study suggests companies that achieve high absolute scale and/or share of digital in the business-mix will be the winners going ahead.
The survey within 10 tech leaders/experts indicates increasing size of digital deals (68% seeing increase), unchanged intensity of cloud, automation impact on legacy, and and flat pricing. The Indian IT model has built-in significant operational efficiencies to mitigate the impact of increasing thrust of onshore over offshore..
HDFC's top picks are Infosys, HCL Tech , L&T Tech and L&T Infotech , Zensar and Cyient