“When the chips were down, your code kept things running,” said Prime Minister Narendra Modi at a NASSCOM (National Association of Software and Service Companies) event on February 17, 2021.
Probably, this best explains how the sector performed during the pandemic. The Indian IT sector was the biggest gainer from COVID-19 as enterprises across the world adopted technology. The stock prices of Indian IT stocks more than doubled and major firms are looking at double-digit growth in FY22.
For the year ending March 31, 2021, the IT sector is expected to grow 2.3 percent, and IT exports are likely to increase to $194 billion from $190 billion last year. This, at a time when India’s GDP is expected to decline by 7 percent.
The future is promising for the sector, if a McKinsey report is any indication. The sector is likely to grow 10 percent and will be a $350-billion industry by 2026, the report forecasts.
While digital and cloud are clearly the growth drivers, the other key themes that will define the next few years include building new service lines and digital talents, which will be the differentiator.
Digital and cloud
According to the McKinsey report shared during the NASSCOM Technology and Leadership Forum 2021, digital and cloud services are expected to present a $600-700 billion opportunity.
The pandemic saw this narrative unfold as enterprises across the world migrated to cloud to ensure business continuity. This demand, combined with vendor consolidation, resulted in one of the largest deal wins IT companies signed over the last nine months.
Infosys signed a record high deal of $7.13 billion for the quarter ending December 2020. L&T Technology Services (LTTS) won a $100 million deal, a record high for an engineering services sector. Overall, the industry signed over $15 billion in deal wins driven by digital.
The trend would accelerate in the coming months. Speaking at the event on Thursday, C Vijayakumar, CEO, HCL Tech, said: “If you look at all the projections, you are looking at an incremental spend of $1 trillion in the next 4-5 years.”
“I think, as an industry, we should get a 20 percent share, which means $200 billion dollar growth over the next 4-5 years. It could potentially double the industry,” he added.
To tap into this opportunity, companies have already stepped up their partnerships with hyper scalers. Case in point is the collaboration between Tech Mahindra and US tech major IBM to create a $1-billion ecosystem in three years.
Infosys launched Cobalt, a suite of cloud services, to help clients in their digital transformation journey, in August 2020.
Indian IT firms have also partnered with Software-as-a-Service (Saas) firms to expand their digital service offerings to customers. For instance, TCS has partnered with Indian SaaS firm Freshworks. There have been more such partnerships.
This would be important for growth in FY22 and beyond.
Newer service lines
The McKinsey report also pointed out that for tech services firms to tap into the opportunity, they need to rethink their portfolio and invest in newer areas of growth. This is already taking shape.
Take, for instance, the Bengaluru-based IT firm Mindtree. The company had focussed on four key verticals – banking and financial services, travel & hospitality, retail, and communication, media & technology. Now, it will focus on healthcare as well.
In fact, it has already completed hiring for the healthcare business in the US, and is ready with a healthcare strategy for roll-out, Venu Lambu, Executive Director and President, Global Markets, Mindtree, said during the Q3 FY21 earnings call on January 18.
Wipro, while unveiling its latest strategy in November 2020, said that the company will focus more on Europe, which is currently the fastest-growing geography for IT firms.
Hexaware now has four priority areas in digital -- automation, cloud, customer experience and touchless technology. They will drive growth for the firm, R Srikrishna, CEO, Hexaware, had told Moneycontrol in an earlier interaction.
But for companies to leverage the opportunity COVID-19 has presented, building talents is the key and also a challenge.
Over the last few months, demand for talent has outstripped supply. “We are at a point where we cannot keep up with demand,” Srikrishna said. This is especially true for talents trained in digital skills such as AI, cloud and cybersecurity.
Thierry Delaporte, CEO, Wipro, said that to leverage the opportunities the pandemic has presented, it is important to invest in reskilling. Julie Sweet, CEO, Accenture, said during the NASSCOM event that the company spends about $1 billion in reskilling its employees.
The McKinsey report pointed out that the talent war for digital skills is likely to intensify in the coming months. “Tech service providers will be required to aggressively invest in building digital skills including non-engineering talent such as design specialists, digital transformation architects and product engineers.”