Is the worst over for the Indian IT sector?

The information technology sector, which until recently was struggling to find its footing, seems to have got its game plan in place. Company managements, and promoters are increasingly speaking to the media about their investment and focus on how they are adapting to the changing times.

In a recent interview Wipro CEO, Abidali Neemuchwala said if his company does not derive 100 percent of its revenue from the digital space in the next three years they would have missed out on the opportunity.

TCS CEO Rajesh Gopinathan said one-third of the company’s revenue will come from the digital space in the next two years.

Analysts have also started taking into account the double-digit growth in the digital space. Edelweiss in a report on the information technology sector said that over the past two years, Indian IT companies have battled cloud-led disruption as well as digital transition. Digital contributes 20 percent plus to revenue now, and the contribution is expected to increase as digital is the fastest growing division in the company.

Wipro has talked of re-training its staff to the latest technology to meet the digital demand.

Edelweiss points out there are three visible signs of growth in the digital space with commentaries from large players (Accenture and TCS) pointing out to a significant increase in digital with the consistent increase in digital deal sizes. Second, green shoots of digital industrialisation imply business shifting back from small to large players and large IT companies adding a significant number of clients in less than USD 10 million  category, implying hunting of clients is behind and farming will commence soon.

To Indian companies credit, they have been slowly planning their foray into the digital space with both internal transition and strategic acquisition. Though most of the acquisition has been small they have been targeted to fill in the skill gaps.

Edelweiss, in fact, goes ahead and sticks its neck out by saying the peak pain is behind for IT companies.

The report says their conviction comes from the fact that disruption on account of cloud-based technology is behind the company and legacy services are set to stabilise and grow hereon.

Cloud migration and customisation offers new revenue stream for Indian IT companies who have trained their staff on these technologies. Global spending is resilient with a tilt towards digital space. Energy and retail verticals are expected to see a revival with oil prices picking up and the impact of e-commerce on brick-and-mortar based businesses has plateaued.

Recovery in the US and European economy and proactive actions taken by companies to tackle tighter visa norms and the depreciating rupee are all behind us.