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Indian IT Services Reimaging Growth in the New Normal #1: Digital Transformation – Arresting the Slide in Revenues

Blog: NASSCOM Official Blog

Indian IT Services Reimaging Growth in the New Normal

A blog series by NASSCOM Research to highlight trends that are driving the growth for Indian IT services in the new normal

Digital Transformation leads in the new normal

‘Digital Transformation’ has become the new buzzword for survival in the new normal, as every business moves online, majority people across the globe continue to work remotely, and social distancing is the new mandate for return to work.

The best way to start the digital transformation discussion is through the slide by Jim Heppelmann from PTC, which he presented at the recent NASSCOM Design and Engineering Summit – highlighting that ‘Digital is the genie (of the post covid times) which is not going back into the bottle’.

Digital continued the growth momentum, despite a slide in revenues

Digital revenues for IT companies across the board maintained growth in 1QFY21, when revenue growth was on a downtrend, signaling the sustained growth momentum for digital in the post covid times.

Indian IT companies digital revenues’ growth and share – 1QFY21* (Indicative)

                                   *TCS and Wipro stopped reporting their digital revenues
                                    Source: Company Reports and NASSCOM Analysis

This digital growth momentum is expected to sustain itself in the coming quarters on the back of a strong deal pipeline, reversing the revenue growth downtrend.


Digital transformation deals are at the forefront in the new normal

During 1QFY21 Indian IT companies reported an encouraging deal pipeline of over USD10 billion, with digital transformation deals accounting for a majority share of the same. Of the 25 deals that TCS reported in 1QFY21 earnings relelase, majority of the deals had a digital transformation or cloud component.

The strength of digital was reaffirmed by the investors when the company’s IPO was oversubscribed by 351 times by the non-institutional investors and 77 times by institutional investors.

Digital Pivot driving acceleration for Indian IT companies

This promising deal pipeline seem to be playing out well for the Indian IT companies, as they trade on premium compared to their historical valuations, a sign of resilience for the industry in the post-Covid era.

Indian IT Stocks trading at a premium to historical levels accelerated by the digital pivot

                  Source: CNBC-TV 18, September 21, 2020

This trend is also visible in the year-to-date share price returns of IT companies with Nifty IT giving a return of over 20%, with a good number of Indian IT companies’ returns surpassing the Nifty IT.

 Cloud leads the digital acceleration story

Cloud has been gaining ground over the last few year but has emerged as the leading theme across IT companies post the pandemic, as more and more customers across verticals are moving towards cloud adoption as it helps businesses in gaining agility and reducing costs.

According to Narsimha Rao Mannepalli, Head of Cloud and Infrastructure at Infosys, “A lot of that (50% target) is only doable if we continue to do well on the cloud side. It’s very unlikely that we can achieve any of those if we don’t succeed on the cloud side.”

Overall, digital transformation acceleration of enterprises have been catalysed by the Covid pandemic bringing back the demand for IT services, especially across the 4Cs – cloud, collaboration, cybersecurity and customer experience (Read more about these 4Cs that are driving the client spending for Indian IT industry in our blog “#Technologynews – The 4 Cs driving the client spending for Indian IT Services”.

According to Gartner estimates, there will be a 6%-8% increase in outsourced IT services from 2021-2024 driven by the acceleration in digital transformation spending. This growth was previously ~4%-5% in the last 10 years.

Now what needs to be seen is how well the IT companies convert this encouraging deal pipeline into revenue; how margins are maintained amidst the client ask to put skin in the game; how new skills are added to the table to tackle the outcome based pricing pressures.

To find out the latest quarterly results insights on performance of Indian IT-BPM segment read our recent Quarterly Industry Review (June 2020), and keep following NASSCOM Community for more insights on the key trends shaping up the Indian IT Services Industry in the new normal.

The post Indian IT Services Reimaging Growth in the New Normal #1: Digital Transformation – Arresting the Slide in Revenues appeared first on NASSCOM Community |The Official Community of Indian IT Industry.

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