Fitch predicts high growth for Indian IT sector in 2021 after pandemic slump

By Sarwar Kashani

Srinagar, India, Oct 6 (efe-epa).- Information Technology (IT) services sector in India is likely to resume high single-digit revenue growth in the next financial year on higher demand for digital transformation, according to Fitch Ratings, following a slump in 2020 due to the coronavirus pandemic.

The rating agency, in a report published Tuesday, said the sector was likely to see minimal revenue growth in 2020 due to the Covid-19 crisis that caused unprecedented business disruptions worldwide.

It said that businesses would be cautious about IT spending on legacy services as they focus on digital transformation.

Fitch forecast the industry’s revenue would “rise by a high single-digit percentage in 2021-2022, due to the increasing demand for digital transformation” as the pandemic-related revenue decline would remain only short term.

The Indian IT services sector saw a total revenue decline of six percent in the second quarter of 2020, according to the National Association of Software and Service Companies.

The decline was because project delivery was affected by lockdowns triggering low demand amid major business disruptions across the globe.

For example, sectors such as aviation and hospitality have suffered severe downturns and have sharply cut their IT spending.

The report noted that the pandemic-related impact was likely to be “only moderate and short term” with customers focusing on transforming their businesses digitally, moving services, and work platforms online.”

It said most companies had reported robust deal wins that should support growth, despite the revenue decline in 2020.

“Digital transformation of customers will drive higher demand for IT services in the medium term. In the new business environment, end-customers and employees stay at home more frequently due to social distancing and precautionary measures,” the report said.

Indian IT services companies have widely adopted work from home practices because the country imposed strict lockdowns for an extended period from March to June.

“We estimate that over 90 percent of employees of these companies are working from home (WFH). We expect WFH will not affect revenue growth as most companies have reported seamless transition.”

For example, Tata Consultancy, the industry leader, has indicated that only 25 percent of their employees will need to work from the office premises by 2025.

Infosys also believes 33 percent to 50 percent of their employees will work from home permanently.

“Successful work from home measures may imply more offshoring in the longer term, as they give strong evidence that projects can be delivered remotely.”

The report predicted that companies were likely to accelerate their efforts in offering cloud-based online services and online working platforms to keep their businesses afloat.

It noted that Indian companies had cost advantages over their peers in the United States, as salaries in the US were much higher than those in the South Asian country.

“We expect the Indian industry will continue to take advantage of its low-cost operations and maintain its strong foothold in the global IT sector,” the report said.

“The industry will continue to remain export-driven as it mainly serves US and Europe-based clients.”