IT business environment picking up says survey

IRIS

Recent CIO surveys abroad and feedback from the IT companies and industry

watchers indicate that business environment has been slowly improving. There

have been consistent positive signs that should augur well for the sector to

post strong double-digit growth (upward of 20 per cent per annum) in FY 2002-03.

The following emerging trends are pointers to this probability:

• Pick up for demand has started and an upswing may be two quarters away.
  
  This is gauged from increasing number of request for proposals (RFPs)
  
  floating in the market. Sales cycles that were elongated have started
  
  shortening.
• Still, most of the RFPs are replacement in nature more to do with cost
  
  cutting and focused on Return on Investment (ROI). Outsourcing through
  
  offshore development centers (ODCs) route is the most preferred delivery
  
  mode. Even foreign IT-services companies are inclined to utilize offshore
  
  bases in countries like India more effectively.
• All Indian software services companies are aggressively pursuing RFPs
  
  leading to rate war.
• There is also an inherent threat of IT companies entering into low-billing
  
  rate jobs. This will be more so in case of large-sized : long-term contracts
  
  with key clients. And once Indian software companies accept such low rates,
  
  they are unlikely to see these revised subsequently, when demand really
  
  picks up. Currently, IT companies are trying to save the day by improving
  
  manpower utilization rates to prevent a decline in margins.
• New initiatives in the areas of business process outsourcing (BPO),
  
  systems integration, consulting, outsourcing / IT-enabled services
  
  (including data center management type services) are likely to provide more
  
  assured, but low-margin avenues for sustaining growth levels. This will be
  
  so for at least one more fiscal, till the real software development
  
  activities in high-tech and high-spend segments like telecom, manufacturing,
  
  etc., show definitive signs of revival. Till such time, IT companies are
  
  likely to rely more on stable verticals like healthcare, government, etc.

Thus overall, it appears that FY 2002-03 will be a year of moderate growth

(20 per cent revenue growth) with probable decline in profit margins. Results

for Q4 of FY 2001-02 and guidance for Q1 of FY 2002-03 and entire FY 2002-03

from IT majors will provide more clue towards extent and magnitude of these

forces taking concrete shape.

Source: myiris.com