Indian IT had a good year in fiscal 2018. India exported $126b of IT services, had total revenues in software of US $ 169b and employed around 4.5m people directly. 60% of Global outsourcing comes to India. Despite a very harsh economic environment evidenced by lower spending, revenues grew between 7-9%. Captives of MNC’s grew more rapidly than others as companies tried to reduce costs. The Start up sector did well too. Inc42 reports that there were 39000 active Start ups, They raised $13.7b of capital in calendar 2017, with 26 Unicorns and 31 Soonicorns as of date creating a total value of $130b! We estimate start-ups employ around 6,00,000 people!
The new year 2019 brings brighter tidings for both IT services and Start ups! Growth of the IT services is expected to be around 7-9% in constant currency with spending increasing in the US, particularly in BFSI. Europe is seeing traction and Japan seems to be opening up. The IT services companies have retrained the majority of their staff in digitisation and new technologies, overcome the negative impact of a tougher regulatory regimes for H1B visas in the US by increasing localisation there and increased spending on sales and marketing. In the past 3 years hiring was low as they increased utilisation from around 77% to 85% today. Their ability to meet the challenge of currency movements, increased competition due to lower spending, a hostile visa environment and rapid technological change is indeed commendable.
In fiscal 2019: they are expected to hire around 250,000 people with the last 8 months seeing increases in recruitment. Fresher compensation is going up by 20% to ensure good talent joins the industry. Digital revenues are growing in double digits. AI/ML, IOT, Big Data, digitisation and mobile technologies are the flavour of the year. Many companies are buying back stocks to enhance returns to investors. There is also a trend of early retirements as senior people leave to rebalance their lives and others join start ups!
The start up sector will see greater action in 2019. The big funds are flush with cash and looking seriously at large cheque’s to invest. The recent $1b investment in Swiggy is a portend of things to come as they seek out opportunities to dominate the market. India should get between $12-15b as investments in 2019 as many Soonicorns raise capital and break out. Here too AI/ML, blockchain, IOT, Big Data and Data Analytics and Robotics will grow as technology goes deeper and more sophisticated. Vertical e Commerce, Fintech, Medtec, Agritech and Life Sciences will see a rapid growth. Many b2b enterprise software start ups too have grown in size. The start ups will see employee addition between 200,000/250,000 across skills, with the ECommerce, Local Delivery and supply chain start ups leading the way. The demand for high quality talent is exploding and a serious shortage could emerge.
Overall 2019 will be a year of growth with 450,000/500,000 jobs being created in both IT services and Start ups. The key will be the growth in Indian capital investing in start ups which is currently at 10% of investments and needs to increase.
(T.V.Mohandas Pai is Chairman, Aarin Capital Partners)
