Indian IT services sector to maintain global market share gains despite headwinds

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The Indian IT services sector will maintain global market share gains, supported by expanding coverage and operating efficiencies, albeit at a moderate pace, according to a Moody’s Investors Service report. “We expect Indian IT services companies to maintain market share gains while preserving their EBITDA margins in the 21%-22% range,” says Kaustubh Chaubal, a Moody’s Vice President and Senior Analyst. “And economic stability in developed countries — which account for 90% of exports by the Indian IT services sector — will fuel growth for the global IT services outsourcing industry, benefiting Indian IT services companies in particular,” he added.

However, currency volatility is expected to pressure growth estimates. While the Indian rupee has seen sustained depreciation against the US dollar since April 2011, the US currency is appreciating against other major currencies, leading to cross currency volatility and conversion impact on growth estimates. “While revenue is predominantly denominated in US currency and euro for the Indian IT services sector, the cost base remains primarily denominated in Indian currency, resulting in a potential mismatch,” Mr Chaubal said.

Moody’s has released sector-in-depth report on Indian IT services entitled, “Market Share Gains Despite Headwinds.” These headwinds include sluggish developed economies, constrained IT budgets, evolving delivery models — such as cloud computing — and pricing pressure. The revenue growth for Indian IT services companies slowed down to 13.0% (compound annual growth rate) in the fiscal year ended 31 March 2015 from 23.2% in FY2010-14 due to headwinds.

India’s share of the global IT offshoring market has been growing from 40-45% to around 55% in the past 10 years. The IT-BPO industry to account for 10% of India’s GDP, almost a fifth of its exports and about 30 million direct and indirect jobs by 2020, according to industry body National Association of Software and Services Companies (Nasscom).

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