IT services growth rate moderate for FY16

Indian information technology services are expected to have a growth rate of 11-13 per cent for FY16, lower than the forecast (‘guidance’) for FY15 of Nasscom, the sector's apex business association, says a study.

Based on a survey by research and advisory firm Offshore Insights, it predicts the sector will grow at 11.5 per cent for FY15, lower than Nasscom’s 13-15 per cent. Nasscom earlier this month said the sector might only manage to be at the lower end of its guidance.

The survey, based on 400 companies representing places in North America and Europe, also stated the North American market will continue to recover and clock about five per cent increase in overall IT spending. The UK and Nordic parts will witness similar growth. However other parts of Europe and Japan will see flattish budgets, with a few companies even shrinking their IT spending.

On an overall basis, IT services spending will see moderate growth. The sources to buy these services will diversify, as new-age providers of software as a service and platform-based services get higher adoption than in the past two years. This impacts offshore revenue growth and while client demand drives look strong, offshore revenue growth will look very similar to FY15.

“While client demand drives are valid, it’s not fully converting into a substantial budget increase. Our interactions show many clients are still conservative. Further, as Europe continues to face economic challenges and oil producing countries face a crunch, we don’t expect global IT spend and offshore spend to increase significantly and growth levels will remain the same as last fiscal,” said Sudin Apte, research director, Offshore Insights.

The survey says overall IT spending has been growing slowly. It was 2.5 per cent in 2013 and 3.5 per cent in 2014. The 2015 number at four per cent, though an improvement, is slow.

Apte said there was a pivotal shift in the new project segment. While 69 per cent of respondents said the ‘keep lights on’ sort of projects were going up, 31 per cent said they were investing in new projects, up from 26 per cent last year.

The survey also found one in five firms with a formal role for digital services.

The combined revenue of the top five entities in the IT services sector is more than half the country's total IT exports.

“The top Indian players have increased their revenue share but the mid-cap players are getting squeezed, with their share in the overall revenue coming down to 18 per cent from the earlier 21 per cent,” added Apte.