Indian IT industry hopeful of maintaining growth in 2012

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Fakir Balaji | 09 Jan, 2012
Despite global economic uncertainty and concerns over the fallout of the sovereign debt crisis in Europe, the Indian IT industry is hopeful of maintaining its growth momentum in 2012.

"The Indian IT sector, especially software services, will do well to sustain the growth momentum as demand for its offerings in export and domestic markets continue to be favourable despite uncertainty, arising mainly out of the Euro crisis," a top industry representative told the news agency ahead of the third quarterly (Oct-Dec) earnings season.

Asserting that the market conditions were not as bad as they were in 2008-10 when global financial meltdown reduced the industry's growth to single digit (six percent) in fiscal 2009-10, National Association of Software and Services Companies (Nasscom) president Som Mittal said software exports would be in line with the projected 15-17 percent to generate about $70 billion in 2011-12 as against $59 billion in 2010-11.

"We are cautious about the outlook for the ensuing fiscal (2012-13) due to concerns over the Euro crisis. Though we don't know how it (crisis) would play out eventually, we are optimistic that our services will be in demand as clients will continue to engage us for their business operations, which are non-discretionary," Mittal said.

The results season starts Jan 12 when bellwether Infosys will announce results for its third quarter ending Dec 31, 2011.

Analysts are also upbeat on the overall performance of the software services sector owing to the long-term contracts of IT projects and the transformational jobs they are involved in providing more for less.

"As evident from their robust performance during the first half (April-September) of this fiscal, we expect the topline growth of the IT majors to be higher than a year ago and sequentially better than the second quarter due to increase in service offerings, client acquisitions and new lines of business such as cloud computing, mobile applications and outsourcing of more IT-enabled services, including remote infrastructure management and data mining," said an analyst.

A sharp depreciation of the rupee to 53 from 49 against the US dollar during the October-December quarter is also expected to improve the operating margins and profitability of the software export firms despite anticipated losses in hedging at a higher rate.

"Benefit from a depreciating rupee will only be a short-term gain on exports but continued volatility in the forex (foreign exchange) market is a cause for concern as it will have an impact on the overseas operations of IT majors and budgets in exploring businesses in emerging markets. Sharp fluctuations in shorter cycles are detrimental either way," Mittal noted.

Notwithstanding the looming Euro crisis, the latest data on job gains in the US, which accounts for over 60 percent of the Indian IT exports, augurs well, though the pace of economic recovery has been slower than expected.

"Job gains or losses in the US are largely in the manufacturing, transportation, retail trade and construction sectors and not in the services sector, which continues to be healthy. Increase in employment in other sectors indicates signs of recovery and investments," Mittal said.

According a research study by an international bank, the Indian IT vendors are in a position to pitch for multi-billion dollar deals that are due for renewal this year and compete for large annual contracts that are up for grabs in new service lines.

"In hard times, when companies across verticals look for cutting costs and focus on core business, they will scout for partners to manage their non-core activities such as IT services, which means more business for our sector," Mittal added.