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Indian IT/ITeS sector’s revenues are expected to rise between 13% to 15% this fiscal, helped by rupee depreciation and continued new client addition in low-ticket size clients ($1 to $10 million), according to a report by CareEdge Research. This is based on an analysis of the top five IT companies accounting for about 60% of the overall IT/ITES sector in India. The top five IT companies include TCS, Infosys, Wipro, HCL Technologies and Tech Mahindra. Further, the sector benefited from rupee depreciation with an average USD-INR rate of 78.8 in H1FY23 compared to 73.9 in H1FY22.
According to CareEdge, the IT industry witnessed steady traction in addition of mid-size clients during H1FY23 supported by an increased focus on digitization and cloud adoption. The report said that the increasing digitisation and the rise in demand for emerging technologies like 5G, advanced data analytics, artificial intelligence, cloud computing, cyber-security, robotics and blockchain provide growth opportunities for Indian IT/ITeS firms.
However, on a sequential basis, client addition has remained largely flat and there has been a slowdown in large-ticket size client addition due to an implied higher base effect on account of a sudden post-pandemic ramp-up in FY22. Also, from a mix perspective, the clientele of $10 million and above contributed more than one-third of all client additions in the $1 million and above bucket for H1FY23 — similar to trend witnessed in FY22.
The report said that the revenue growth has been broad-based across verticals like BFSI, retail, healthcare, and manufacturing globally. But, the BFSI vertical continues to be the fastest-growing segment and largest revenue contributor accounting for over 30% of the revenues of top five players.
Profitability
The report said operating profitability is expected to continue to remain range bound in FY23 amid moderation in revenue growth. The factors like rupee’s depreciation and moderation in attrition would support operating profitability of the top five players in the IT/ITeS sector. Further, optimisation of employee cost owing to the expectation of tapering attrition and slowdown in hiring may further support operating profitability going forward.
Meanwhile, risks arising from high inflationary and recessionary environment, especially in the US and European markets could potentially weigh on discretionary IT spending by corporates and remain the key monitorable.