Growth in Indian IT Services Exports to Slow Down, Says Nasscom

IDG News Service — Growth in India's exports of IT services, business process outsourcing and related services is forecast to drop to 11 to 14 percent in the Indian fiscal year to March 31, 2013 from an estimated 16.3 percent in the current fiscal year, the National Association of Software and Services Companies (Nasscom) said.

The trade body said Wednesday it had taken into account the economic uncertainty in key markets like Europe, and delayed purchase decisions by customers, to arrive at the forecast.

India's ability to achieve the growth forecast by Nasscom will largely depend on developments in Europe, analysts said.

Global outsourcing revenue was down 15 percent in the fourth quarter of last year, in comparison to the previous quarter, and growth is expected to stay flat through the first six months of this year, unless the economic conditions in Europe improve, said Salil Dani, research director for global sourcing at Everest Group.

Government and public-sector spending on outsourcing in Europe and the U.S., the largest market for Indian outsourcers, is also likely to take a hit, Dani added.

Client sentiment is down, and IT budgets are stagnant and even getting cut, said Sudin Apte, principal analyst and CEO of Offshore Insights, a research and advisory firm in Pune, India. Clients are not yet spending significantly on emerging technologies that were once seen as growth markets, such as cloud, mobility, social networking, and analytics, he added.

Apte expects IT services and related exports to grow by 8 to 9 percent in the fiscal year to March 31, 2013.

Nasscom's export data includes exports to parent companies by Indian subsidiaries of multinational companies like Microsoft and Dell, commonly known as "captives". But Dani does not expect new projects to captives to make up for lackluster business to third-party IT service providers in the country.

Cognizant Technology Solutions on Wednesday forecast its revenue would grow by at least 23 percent in 2012. The Teaneck, New Jersey, outsourcer is usually grouped with Indian outsourcers as it has 75 percent of its staff in India, and competes with Indian outsourcers like Tata Consultancy Services (TCS), Infosys and Wipro both for business and staff.

In a difficult period, companies like Cognizant and TCS that understand customer needs better, and have strong domain expertise will likely grow faster than other Indian companies, Apte said.

TCS said last month that its revenue for the quarter ended Dec. 31 was US$2.6 billion, up by 20.6 percent from the same quarter a year earlier, with net profit up 9 percent at $568 million. Wipro posted lower growth in the same quarter, as the company is going through a reorganization of its business focus. Infosys, another outsourcer in Bangalore, lowered its revenue growth forecast for the fiscal year ending March 31, citing the debt crisis in Europe and an uncertain market.

Exports in the year to March 31, 2012 are expected to be $69 billion, with IT services the largest component growing at 19 percent to $40 billion, Nasscom said. Business process outsourcing is expected to grow 13 percent to $16 billion.

John Ribeiro covers outsourcing and general technology breaking news from India for The IDG News Service. Follow John on Twitter at @Johnribeiro. John's e-mail address is john_ribeiro@idg.com