Firming oil prices will lead to some discretionary spending by energy firms on digital projects, which will give IT firms some good news. According to industry lobby Nasscom, the growth will be on par with the sector’s 9.1 percent growth in FY19.
MUMBAI: The information technology services sector is estimated to clock a flat growth of up to 9 percent in the fiscal year 2019-20, a report said Monday. The growth will be on par with the 9.1 percent growth achieved by the sector in FY19, according to industry lobby Nasscom. The grouping has discontinued a 25-year-old practice of coming out with growth estimates, citing the landscape changes, making the job harder. Domestic rating agency Icra said the sector would clock a 7-9 percent in USD in FY20 mai, only on demand for digital solutions.
“The earlier small-scale proof of concept digital projects has started evolving into enterprise-level larger implementations coupled with improvement in discretionary spend supporting future growth,” it’s vice president Gaurav Jain said. The traditional mainstay of banking and financial services will experience some weakness in low-interest rates, focus on cost optioptimization, and managing discretionary spending, it said, adding that insurance companies are supporting the growth.
Firming oil prices will lead to some discretionary spending by energy firms on digital expenditure and give the IT firms some good news. At the same time, retail also improved in the first nine months of FY19. From a profitability perspective, the rating agency said margins were flattish in the third quarter of FY19 on pricing pressure, increased regulatory costs, wage inflation, and higher onshore hiring and sub-contracting costs necessitated by visa curbs.
However, the overall margins are estimated to decline to 20.8 per cent in FY20 for its 19 sample companies from 22.5 per cent in FY18. Indian companies have started to ramp up onshore hiring in its largest market of the US on visa issuance norms being tightened by restricting the entry-level programmers coupled with increasing compliance and evidence requirements adding to cost pressures, it said. There will be higher consolidation in the industry, especially among the small and mid-size players, owing to margin pressures in the next decade, it said. From a credit outlook perspective, the rating agency said it expects some stability in the sector’s ability to sustain free cash flows.
