Indian IT sector to grow 6-8% in FY20, companies to increase onsite hiring: ICRA

Ratings firm ICRA has said that the Indian information technology (IT) services sector is projected to grow 6-8% in dollar terms during 2019-20. 

ICRA said in a research report that it is seeing signs of a stable demand environment for the IT services sector, with companies reporting higher deal wins during the preceding year and net employee addition increasing.

ICRA surveyed 13 companies and reported that companies grew by 16.8% in rupee terms and 7.5% in dollar terms during 2018-19, it said in a statement. 

The net employee addition was 1,13,787 during 2018-19 compared with 11,600 in 2017-18 and 93,500 the year before, ICRA said.

“Demand is being driven by scaling up of solutions built around digital technologies (mobility, social, cloud, analytics and automation),” said Gaurav Jain, vice president - corporate ratings at ICRA. “

“Traditional outsourcing services such as custom application maintenance face pricing pressure and enterprise resource planning applications are increasingly becoming consumer-oriented with application delivery mechanism shifting to cloud-based environments,” he said.

Indian companies have also ramped up onshore hiring in the US since Donald Trump’s administration tightened visa norms to restrict the entry of junior programmers. The US issued 10% fewer H-1B visas (fresh and renewals) during FY 2018 (October-September period) at 3,35,000 compared to 3,73,400 the preceding year, the report said.

ICRA reported that the banking and financial services sector continues to see some weakness due to macroeconomic conditions including low-interest rates and continued focus on cost optimization. The insurance vertical is supporting the overall growth for the financial services sector, it added.

The retail vertical grew at a healthy pace during 2018-19, supported by improved consumer sentiments and higher discretionary demand in the brick-and-mortar segment, the report added.

According to the report, despite the currency benefits as well as the use of operating levers, profitability remained at 22.5% in 2018-19 on account of higher onsite hiring and sub-contracting cost necessitated by visa curbs, pricing pressure, increased regulatory costs and wage inflation. The share of fixed-price contracts improved to 55.2% from 53.4% while employee utilisation levels remained flat for sample companies, the report added.

“Over the next decade, ICRA also expects consolidation in the industry especially among small and mid-size players as margin pressure will intensify leading to lower returns for shareholders. Geo-Political issues restricting the movement of skilled labour or increase in minimum salary requirement will have a negative impact on the sector outlook,” Jain added.