In 2023, the Indian IT industry has shifted from its previous high-speed growth marked by double-digit figures. It’s currently dealing with challenges from the broader economy and the possibility of slower growth in Western economies, resulting in a noticeable decline in revenue expansion.
In the face of these obstacles, the $245-billion industry is presently wrestling with finding pathways for growth in a difficult market terrain, where opportunities for progress are becoming increasingly elusive.
Key factors
The underwhelming performance of the Indian IT industry this year resulted from a blend of various factors. Global geopolitical tensions introduced uncertainty, while the decline of SVB instigated a more cautious approach to tech investments in the BFSI sector. Additionally, apprehensions regarding a possible economic downturn led to decreased expenditure on digital transformation initiatives across multiple industries.
IT major Wipro, for instance, saw its revenue decline for three consecutive quarters. In the latest quarter, its revenue dipped 3.7 per cent YoY, and the guidance for the next quarter was narrowed too. Infosys’ year-on-year growth in the last three quarters too has seen a declining trend from 16 per cent in Q4 to 10 per cent in Q1 and 6.7 per cent in Q2. It too has been narrowing its guidance.
Awaiting clarity
Tier-1 IT this year faced the challenge in revenue translation of the deal pipeline. While the deal pipeline looked robust, the process of ramping up and implementing these deals has been delayed as enterprises are exercising caution, waiting for greater clarity on the potential slowdown.
The greener pastures of the industry this year were the engineering research and development (ER&D) services companies which in contrast to the industry reported double digit revenue growth. The niche players such as Cyient, KPIT Technologies and Tata Elxsi benefited from the demand for engineering services predominantly by the auto and aerospace sector.
On a broader sectoral level, as business has slowed down, the sector which is one of the significant white-collar job providers has cut down on hiring. In the last 12 months, gross IT hiring addition witnessed an all-time low of 14 per cent, down from a peak of 40 per cent in 1Q22, according to analyst firm ISG.
IT firms have also reduced their headcount significantly, in Q2, top 3 firms Infosys, HCLTech and TCS saw headcount fall by over 16,000. Companies have also been increasingly shifting to the work-from-office model, as most top-tier IT firms have called back employees for at least some days of the month.
Rise of Gen AI
Despite the prevailing overreaching challenges and uncertainties, the Generative AI wave has emerged as a silver lining for IT companies. Most IT firms including top-tier firms TCS, Infosys, Wipro and others have made efforts to cash in on the opportunity by building specified AI services for clientele.
Infosys introduced Topaz, an AI-first set of services, solutions and platforms using generative AI technologies. Wipro launched Wipro ai360, an AI-first innovation ecosystem and also committed to making a $1 billion investment in advancing AI capabilities over the next three years.
As headwinds mounted the industry this year also saw multiple senior level exits. Notably, Infosys saw the exit of its CFO Nilanjan Roy, EVP Rajeev Ranjan, President Mohit Joshi, and MD Ravi Kumar, among others. Similarly, Wipro saw the exits of its CFO Jatin Dalal, Growth Officer Stephanie Trautman, SVP Mohd Haque, and Ashish Saxena, among others.
On the bourses, the IT stocks have had a good run. The Nifty IT Index is up 24.1 per cent year-to-date, while the broader index is up 17.83 per cent for the same period. The IT stocks have gathered more steam from November this year, as expectation of demand recovery for the sector is now upbeat.
Omkar Tanksale, Research Analyst at Axis Securities, summarises that the year has been marked by scepticism due to uncertainties from the North American economy, leading to spending delays and an unexpected lack of revenue growth. However, supply side constraints this year have eased off with reduced hiring.” he said.
Going forward, analysts expect growth to be tepid in seasonally weak Q3 and see potential recovery in Q4. Despite uncertainties causing spending delays, the demand for digital and cloud transformation persists, and recovery can be expected to be swift once uncertainties subside.
Key moments in 2023
Rajesh Gopinathan, CEO of IT giant Tata Consultancy Services (TCS) resigned.
The Indian IT industry leveraged the new Generative AI, by making investments, upskilling and expanding offerings.
In 2023, gross IT hiring addition witnessed an all-time low of 14 per cent, down from a peak of 40 per cent in 1Q22
Mid-tier IT firm Coforge crossed $1 billion revenue target.
The industry saw seemingly high senior-level exits, with some major migration to Cognizant
Trends to lookout in 2024
Demand recovery for the industry with new budgets flowing in and macro conditions changing.
Performance of embattled Wipro, which throughout the downturn has lagged peers and has seen high senior-level exits.
The steam IT stocks will pick up on the bourses after it started to pick up momentum towards the end of the year.
Return of employees back to office full time.
Technology spends returning back for digital transformation spends, beyond the cost takeout deals that happened in 2023.
