March 8, 2018

Information Technology Industry Analysis

ALWAYS – INVEST IN WHAT YOU KNOW & WHAT YOU CAN UNDERSTAND. DEVELOP CURIOSITY AS A TRAIT

 

Must know facts:

  • NASSCOM is the trade association of Indian IT BPM industry.
  • IT BPM industry revenues (excluding hardware) is estimated at around US$ 130 billion in FY 2015-16 and is estimated to be at US$ 154 billion in FY 2016-17. The contribution of the IT sector to India’s GDP stood at 7.7 per cent in 2016.
  • The top 5 IT firms contribute over 25 per cent to the total industry revenue, indicating the market is fairly competitive.

 

Influencing Factors for price change:

  1. Stocks in IT sector are best judged by benchmarking against movement in – ‘NIFTY IT’ & ‘S&P BSE TECK’ indices. As always companies with sound management principles have an edge over other IT stocks in the same sector.
  2. Money markets – Rupee appreciation i.e. lower dollar value, increase in rupee – directly translates to higher export margins, so this factor should be keenly watched out for.
  3. Initiatives taken by the state/central government to promote IT and ITeS sector in India like – Government of India is planning to set wifi facility for around 5.5 lakh villages by March 2019, government expects to start broadband services with about 1,000 megabit per second (1 gbps) across 1 lakh gram panchayats by the end of 2018.

 

Understanding the Industry:

What is IT/ITeS? This is most commonly asked question , so its good to clear it out!

The IT and ITeS sector comprise of services that are related to information technology, research and development services as well as engineering designs, hardware and BPO.

IT: The application of computers and telecommunication equipment to store, transmit, retrieve, and manipulate data, in context of business or an enterprise.

ITeS: Information technology enabled services (ITES), is a form of outsourced service which has emerged due to involvement of IT in various fields such as banking, finance, telecom, insurance among others. Some of the examples of ITES are medical transcription, back-office accounting, insurance claim, credit card processing and many more.

India remained the world’s top sourcing destination in 2016-17 with a share of 55 per cent. Indian IT & ITeS companies have set up over 1,000 global delivery centres in over 200 cities around the world. There are number of reasons that could attribute to the growth of IT BPM & ITeS companies –  Rapid industrialisation and growth of IT parks in the country, Low operating costs, A large number of resource readily available in the country.

The IT and ITeS sector has generated massive employment in the past and continues the trend of providing jobs. With online shopping, social media and cloud computing flourishing more than ever before, there is great demand for IT professionals in e-commerce and business to consumer firms.

With the internet rapidly becoming a part of our daily lives the job opportunities are on an accelerated boost. Cloud computing, social media and mobility analytics are the reasons for growth in global technology. Internet shopping, cyber security, wearable computing, socially enabled business process, battery and power technologies, mobile customer engagement and business analytics are the areas of options available for job opportunities in the country.

Other than watching videos online and listening to songs, there are huge number of users that download mobile value added services. Social networking is a rage in itself and continues to have a 75 percent of users engaging actively in it.

 

Estimated Market Size:

The internet industry in India is likely to double to reach US$ 250 billion by 2020, growing to 7.5 per cent of gross domestic product (GDP). The number of internet users in India is expected to reach 730 million by 2020, supported by fast adoption of digital technology, according to a report by National Association of Software and Services Companies (NASSCOM).

Market estimate as quoted in IBEF, report by NASSCOM suggests – Employees from 12 Indian start-ups, such as Flipkart, Snapdeal, Makemytrip, Naukri, Ola, and others, have gone on to form 700 start-ups on their own, thus expanding the Indian start-up ecosystem.! India ranks third among global start-up ecosystems with more than 4,200 start-ups. E commerce market in India is set to grow at 30 per cent annually to hit US$ 200 billion gross merchandise value by 2026.

Rise in mobile-phone penetration and decline in data costs will add 500 million new internet users in India over the next five years creating opportunities for new businesses, as per private equity and venture capital firm Omidyar Network. Digital payment in India is expected to grow from 32 per cent in 2013-14 to 62 percent in 2017-18 in terms of volume of transactions.

 

Road Ahead:

With the internet rapidly becoming a part of our daily lives the job opportunities are on an accelerated boost. Cloud computing, social media and mobility analytics are the reasons for growth in global technology. Internet shopping, cyber security, wearable computing, socially enabled business process, battery and power technologies, mobile customer engagement and business analytics are the areas of options available for job opportunities in the country.

The Indian government is emphasizing on better technology enabled delivery mechanisms for a multitude of government projects. Further, with the new digital India and start up Indian initiatives being launched, the domestic market for software services has a bright future ahead.

 

Top Stocks in the industry:

TCS, Infosys, Wipro, HCL Tech, Tech Mahindra, Mindtree & many more.

(Please note above stocks are not recommendations, they are purely for information purpose only)

Information Source / References: NASSCOM, DIPP, IBEF, The Economic Survey 2016–17 & 17/18, Agricultural and Processed Food Products Export Development Authority (APEDA), Department of Commerce and Industry, Union Budget 2017–18, Press Information Bureau, Ministry of Statistics and Programme Implementation, Press Releases, Media Reports,

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Economic Survey 2018 – Volume 1 & 2

ECONOMIC SURVEY 2017-18 VOLUME 1 and 2

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