Shifting dynamics: Top IT cos target niche growth avenues Smaller sectors, bigger boost
Amid a year of turbulence for leading domestic IT service providers, smaller niche markets are emerging as promising avenues for sustained growth. However, while India’s top five IT companies are expected to benefit from it, midcaps and smaller exporters may face challenges as larger peers target their key markets.
A Mint analysis, spanning four quarters of 2023, revealed that Tata Consultancy Services, Infosys, Wipro and Tech Mahindra witnessed robust growth across manufacturing, health and life sciences, and energy and retail.
The sectors outpaced the companies’ overall net revenue growth, which is expected in a challenging year marked by a decline in business from primary revenue source— banking, financial services, and insurance (BFSI).
However, HCL Technologies, the other firm in the top five, was an outlier, with its BFSI revenue outpacing overall growth.
Industry veterans said this indicated increasing tech maturity in these verticals leading to more tech transformation deals, compared to the saturated BFSI sector, which is already an advanced market.
However, this isn’t good news for midcaps, such as Cyient, Persistent Systems, and Zensar, which might face heightened competition from larger firms, despite having developed specialized competencies in these sectors.
According to Mint’s analysis, manufacturing witnessed the fastest growth for Infosys and Tech Mahindra at 12.1% and 8.7% year-on-year, respectively. In comparison, Infosys’
Indian IT companies eye revenue growth from smaller sectors Company/Fastest quarterly revenue in December remained flat, while Tech Mahindra saw a 5.7% yoy drop.
TCS, India’s largest IT services firm by market cap, witnessed its energy, utilities, and resources vertical emerge as the fastest-growing, with key businesses growing at 12.8% y-o-y, albeit on a smaller base than others. TCS’ quarterly revenue rose 2.9% y-o-y in the December quarter.
For Wipro, healthcare performed well, growing nearly
10% yoy during the December quarter, while its overall revenue dropped by 5.8%.
Noida-headquartered HCL Technologies was the only outlier, with its BFSI revenue rising 14.8% y-o-y over the past four quarters. HCL’s quarterly revenue rose 5.3% y-o-y in the December quarter, making it the only outlier posting meaningful growth this year. It is also on target to meet its guidance at the start of FY24.
Industry experts attributed much of these trends to specific deals, the demand for tech transformation in particular 9.96 8.72
14.79 12.81 12.13 verticals compared to BFSI, and ample room for growth.
Kashyap Kompella, founder and chief executive of consultancy firm RPA2AI Research, said the post-pandemic resurgence in manufacturing was a key factor, “as clients are strategically investing in digitizing operations and improving supply chains.”
The rise in manufacturing, healthcare and energy sector revenue can also be attributed to the rising demand for engineering, research and development (ER&D) services. While Kompella said ER&D is a “relatively small” subset for the largest domestic service providers, there is scope for growth.
“ER&D sector is the bright spot in the Indian IT industry’s growth prospects. It is the fastest growing part of the industry at 7.4% y-o-y, as evidenced by Nasscom data. In addition to organic growth, strategic investments and acquisitions can help companies tap the ER&D opportunity,” he said.
Manufacturing witnessed the fastest growth for Infosys and Tech Mahindra at 12.1% and 8.7% y-o-y, respectively