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NASSCOM says IT companies prepared for challenges
R Chandrashekar , President ,NASSCOM
Jul 22, 2016 | Source: CNBC TV 18
On concern that the street has about this sudden move away from legacy businesses to digital businesses that a lot of the IT companies are unable to cope with at a very fast pace : First of all, I would defer from you in the assessment that there is a big cloud over the sector. In fact, that is quite far from it. Let me tell you why this divergence of views is coming. If you look at the sector, the revenue growth has been strong; it is across geographies, across service lines, across verticals barring some verticals like utilities and energy where there has been a lot of pressure. But, while the revenue growth is quite strong, the margins are under pressure and that is what perhaps, there is an overemphasis on the margins.
But even as far as the margins are concerned, if you look at the companies, in terms of how they are responding to it, I would say they are reacting extremely well and proactively and this is reflected in the higher productivity of the employees in the company which comes from two main streams. One is a greater adoption of automation, which increases the productivity per employee and a reduction in the bench strength which means that more of the workforce and a higher percentage is being put to use.
All of these are enabling the companies to cope with the changing dynamics in the market. But the demand side is strong, it is spread across verticals, it is spread across geographies, including Europe, of course this is pre-Brexit impact, but it is quite strong and companies are increasingly adjusting to the digital area where 40 percent of the new deals have been in digital and a lot of companies are looking at that space, involving both a combination of the technology as well as the domain and which can lead to higher returns.
Based on the survey that Offshore Insights has done, there is clearly a slower growth that we are looking at in the sector. Would NASSCOM want to scale down its growth estimates for the year? Not at all. We are fully aware, we were aware even at the time when the original projections were made that there is considerable volatility, uncertainty and the rest of the complexity, etc. So, it is not as if there is anything which has happened which is outside of the range of volatility or uncertainty that was anticipated barring maybe the actual event of Brexit happening -- which again I will come to in a moment -- as I said, it is the changing nature of the business and as there is economic turbulence and shifts in other countries, it is not as if investment is coming down. The nature of investment however is changing. Number one, there is a greater emphasis on digital, as I said, 40 % of new deals are on digital. The second is that the margins are being squeezed even more and the third is a shift in the nature of contracting where there is a greater amount of risk sharing and it is moving towards outcome based, which presents both opportunities in terms of higher value addition and challenges in terms of higher risks.
All of these are adjustments, which are being made by the industry and we should also take into account the fact that in spite of all of these changes, not only is the revenue growth sustained across all the geographies and across verticals and service lines, by and large, but also, the prospects from what we hear from the companies, they are looking, there are lots of deals out there, and of course, competition is becoming more intense. India’s share in the global sourcing is increasing in the current situation, not decreasing.
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