Nasscom forecasts single-digit growth for IT sector at 7-8% in FY18

Software exports from the country are expected to grow by single digits for a second year in a row.

A number of reasons such as automation, slowing business in traditional services, growing protectionism in developed markets, and a shift in client spending to newer areas such as digital and cloud has been attributed for slow growth.

The National Association of Software and Services Companies (Nasscom) on Thursday forecast 7-8 per cent growth for the IT sector in 2017-18 (FY18), attributing this to political and economic uncertainties impacting decisions and discretionary spend.

Last year, Nasscom had projected growth of 10-12 per cent, but the industry’s exports grew by only 8.3 per cent to $117 billion. The sector’s domestic growth was 8.6 per cent to $38 billion, taking the total to $155 billion.

The industry contributes 7.7 per cent to gross domestic product.

This year, growth is likely to come from global banks and financial institutions as well as digital implementations.

Growth in the digital business, however, will not offset the decline in traditional IT services. Wipro, Tata Consultancy Services, and Infosys commentaries confirm this.

Nasscom said it was aware of the shifts and was encouraging investment in re-skilling and training people in the sector on emerging technologies.

“Considering the evolution the industry is undergoing because of adoption of new technologies, it is imperative that we drive the skilling and re-skilling of new and existing talent, helping us prepare for the future opportunities,” said R Chandrasekhar, president of Nasscom, at a conference on Thursday.

Indian firms are increasing scrutiny on employee performance, reducing people on the bench and focusing on improving productivity. Despite this, the industry will be a net hirer of 150,000 people this year thanks to the opportunities thrown up in digital and cloud technologies. Growth is also likely to be driven by modernisation of operations and adoption of new technology.

Analysts have factored single-digit growth expectation.

“We believe 7-8 per cent growth for the industry is normal, considering the global and business environment. However, investors would expect mid-cap firms to grow more than 10 per cent given their revenue base,” said Madhu Babu, sector analyst with brokerage firm Prabhudas Lilladher.

He added, “Last fiscal year, both retail and BFSI (banking, financial services and insurance) industries were not doing well in the US. Even if BFSI is showing signs of improvement, retail is slowing.”

This was reflected in how investors were looking at the IT stocks.

The S&P BSE IT index closed 0.33 per cent or 33.06 points down at 9,887.3 on Thursday, with stocks of TCS, Infosys, Wipro and HCL Technologies in the red. This was in contrast to the S&P BSE index that closed 0.02 per cent, or 7.1 per cent, up at 31,290.7 points on Thursday.

“In the last three or four years, IT services investors have not made money from stocks,” said Babu of Prabhudas Lilladher.

Nasscom said that it has initiated several activities to help accelerate the digital opportunity in the export and domestic market, which includes setting up centres of excellence in the country to build capabilities in cyber security, internet of things, design and data sciences capabilities. It has also expanded outreach to newer markets too will be a top most priority, with a focus on showcasing digital solutions in geographies like Japan, Germany, China, Middle East and Africa, Nasscom said.