Indian companies to keep IT spends resilient in 2022

An increasing demand for digital transformation, coupled with regulatory compliance requirements for data localisation and related aspects, are expected to help information technology (IT) spending among Indian companies remain resilient for calendar year 2022. According to a report published on Thursday by market researcher International Data Corporation (IDC) India, overall IT spending among consumers and enterprises will grow at 13% year-on-year (YoY) this year — down from 25.3% YoY in 2021. 

According to IDC India, the growth slowdown is expected off the back of reduced consumer IT expenditure — including mobile phone and laptop sales — which is tipped to decline sharply this year. However, the growth pace in enterprise spending, as well as costs incurred by IT service providers such as Tata Consultancy Services, Infosys and Wipro, will remain resilient based on the demand for cloud migration among companies, and the overall digital transformation of domestic businesses. 

As a result, India will continue to outpace the global growth pace of IT spending, which is tipped to be around 6% this year. According to industry analysts, market headwinds such as concerns around inflation in Western markets, coupled with cautious approach from enterprises offering large deals (valued at above $100 million per year) to IT services firms, are slowing down the growth pace of IT spending globally. 

Kumar Rakesh, IT and automotive analyst at Paris-based banking and financial services firm BNP Paribas India, said that one of the key factors contributing to the resiliency of IT spends in India is the increasing importance among enterprises to make “targeted” IT spends. 

“This has increased the potential for IT services to attract more clients, as customers and supply chains increasingly come online. Companies are becoming increasingly tech savvy across industries, leading to a structural change in the growth pace of the overall IT industry. This has made the IT majors resilient to various market factors,” Rakesh said. 

He further added that while the global IT sector saw quarterly growth rate of around 6% in the previous quarters in FY23, the same may reach “high-single digit growth” in the next two quarters. 

This growth, however, may see emerging global markets such as India play an increasingly important role — as big global spenders hold back. For instance, on July 19, a Bloomberg report underlined that Apple, the world’s most valuable company at $2.6 trillion as of May, will slow down hiring and cut expenses in the coming quarters on the back of growing macroeconomic concerns. 

However, in its report, IDC India claimed that as per a survey conducted by the firm, six of every seven domestic firms claimed to either continue with their planned IT expenditures, or even increase spending, to match their digital transformation and tech adoption targets. 

As BNP Paribas’ Rakesh said, this is reflective of a change in pattern in IT spending, which may see firms offer a larger number of deals — but of shorter durations and smaller values — to match more near-term targets. 

India, to be sure, accounts for a very small chunk of the business revenues earned by IT service operators at the moment. For instance, in its quarterly earnings filed Wednesday, IT majors HCLTech said that beyond the two American continents and Europe, the rest of the world, which includes India, accounts for 7.7% of the company’s overall quarterly revenue. For Wipro too, Asia-Pacific, Middle-East and Africa offer a combined market share of 11.4%. 

According to Akshara Bassi, research analyst for global cloud and servers market at market research firm Counterpoint India, India accounts for approximately 1-2% of the global market share for most IT majors — a figure that may grow as more companies look to come online.