IT Sector Performance Over the Years

19 August 2022
6 min read

In the most recent fiscal year, India's IT sector experienced rapid expansion, and the COVID-19 emergence has increased global reliance on IT services.

Technology is still essential for driving growth and transformation, but what are the prospects for the future, and how are IT firms being impacted by the weakening of the Indian rupee? We'll cover all of that and much more in this blog. Let's investigate!

What Does the IT Sector Include?

Information technology is a broad term that refers to various computing and new communication technologies. It covers a variety of systematic information management and processing topics.

The industry encompasses a number of areas, including the internet, computer hardware, and software, all of which are essential to the IT systems that are collectively created, managed, and maintained by information technology specialists.

Indian software professionals have seen a sharp increase in demand from developed nations like the USA, Germany, and Japan in recent years. Comparing all industries, the information technology sector has experienced the highest growth rates over the past several years.

Let's further break down the sector to understand the composition.

The Entire Information Technology Industry Mainly Comprises:

  1. Software Segment
  2. Hardware Segment
  3. ITES-BPO Segment

Further, the total software and services segment comprises:

  1. IT services and products
  2. ITES-BPO, engineering services
  3. R&D and software products

You may also want to know the Best Technology Mutual Funds to Invest

Growth & Performance of the IT Sector

India is now the global centre for IT. Today, India is the largest exporter of BPO and IT services worldwide. India accounts for 55% of the global outsourcing market share. India's economic development has been significantly influenced by the IT industry. Whereas the IT sector's share of India's GDP in 1998 was only about 1.2%, even in the midst of the global pandemic, the sector's share of India's GDP in 2021 was about 8%.

India is now a global centre and the capital of Information Technology. The Indian IT industry has more than 17,000 forms of which over 1,000 are large firms with over 50 delivery locations in India. Additionally, the nation's cost competitiveness in the provision of IT services—which is roughly three to four times more cost-effective than the US—remains its key differentiator in the global sourcing market.

According to the NASSCOM Enterprise XO Survey 2022, “60% of XOs predict a 6% increase in technology spending in 2022 over 2021, with a focus on supply chain, sales & marketing, and customer service. With about 30% of respondents planning to increase their technology team by over 15%, end-user businesses are emerging as job creators in the technology industry.

The IT sector has increased 1.6% over the past week, driven by gains of 1.4% from Tata Consultancy Services. Currently, investors' attitudes toward the Indian IT sector are largely neutral, which suggests that they expect long-term growth rates to remain consistent and stable. Close to the industry's 3-year average PE ratio of 26.6x is being traded. The sector is trading close to its PS ratio of 4.4x over the past three years.

Even though the industry's PE ratio is trading below its three-year average of 69.1x, investors have the most optimism for the Internet Services and Infrastructure sector.

They appear to be confident that future earnings will increase more quickly than they have in the past. The IT Consulting sector is the one with the worst perception among investors. However, given that it is currently trading well beyond its 3-year estimate of 21.0x, investor sentiment appears to have improved.

In addition, the IT sector hired 4.5 lakh new workers in FY22 (as of February), the most in one calendar year, and 44% of the total number of new hires were women.

How Has the IT Sector Contributed to Wealth Creation?

Analyzing the data and trends of the last decade reveals robust wealth creation (over 90,000 crores by the year 2002 only) in the IT sector. Another interesting trend set by the industry is attracting large foreign direct investment to the tune of over 1000 million USD by the year 2004 alone.

If you deep dive into the major factors facilitating such growth and development of the information technology industry in India, some of the worth mentioning include:

  1. Comparatively low cost of technical labour.
  2. The government initiatives to promote technology-based industries.
  3. Consistent Foreign Investment in the information technology industry.
  4. Focused investment in quality control and process management tools to improve the quality.
  5. The mathematical and logical prowess of IT professionals in India.
  6. Relatively simple legal systems & procedures in India.
  7. Consistent Technical innovations.
  8. Targeted Investments in the Sector.

Market Size of the Indian IT Industry 2022

The Indian IT market's various sectors had a total market size of 99 billion US dollars in the fiscal year 2021, with IT services having the largest share. The Indian IT market is worth 235 billion US dollars overall, including eCommerce. The hardware industry was left out of this. In the fiscal year 2021, the market expanded by more than 2% on an annual basis.

Additionally, the National Association of Software and Service Companies (NASSCOM) projects that the Indian IT industry will generate US$ 227 billion in revenue in FY22, up from US$ 196 billion in FY21.

Future of the IT Sector in India

The IT sector is expected to grow to a size of about 350 billion dollars over the following few years, according to estimates. This trajectory is currently pretty much on track, and while FY23 is expected to be a strong year as well, it is possible that FY23 will grow at a slightly slower rate than FY22 given many of the macro situations that are currently emerging.

Remember that FY22 followed a somewhat weak FY21 due to the COVID pandemic and that FY23, coming off a higher base, may be slower than FY22 but will still be a very strong year.

The COVID 19 pandemic's positive establishment effect on the IT industry would be that it has made technology more often a problem-solver than a problem-causer.

Technology can be a very potent force for transformation that is now present across the globe and the industry spectrum, and the COVID 19 pandemic has managed to bring about that consciousness and accomplishment. This is incredibly encouraging and optimistic for the IT industry as a whole.

Furthermore, it is predicted that the hiring trend in the IT industry will remain positive. Amidst the macro downside risks that people are becoming concerned about, the majority of IT companies report that demand momentum is consistently stronger. As a result, FY23 is anticipated to be yet another year of powerful recruitment.

Conclusion

The term "IT Sector" refers to the production of hardware and software for information technology, excluding ESDM, and includes the creation of IT infrastructure, services, and training facilities. We sincerely hope that this blog has given you a thorough understanding of the Indian IT industry.

Disclaimer

The stocks mentioned in this article are not recommendations. Please conduct your own research and due diligence before investing. Investment in securities market are subject to market risks, read all the related documents carefully before investing. Please read the Risk Disclosure documents carefully before investing in Equity Shares, Derivatives, Mutual fund, and/or other instruments traded on the Stock Exchanges. As investments are subject to market risks and price fluctuation risk, there is no assurance or guarantee that the investment objectives shall be achieved. NBT do not guarantee any assured returns on any investments. Past performance of securities/instruments is not indicative of their future performance.
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