Presents

IT Sector Report 2021-22

For queries and suggestions, mail to:
summit@nmims.edu.in
❖ Introduction

In the last few years, India has emerged as one of the fast-growing economies and this trend is
estimated to continue in the future. India has moved from being a major driver to “the largest
player” in the off-shore delivery world. The processes delivered are amongst the highest in the
value-chain of companies, the supply-side elasticity of skilled English-speaking manpower
across technology and non-technology spaces is unmatched, the economic surplus in the
industry has shifted to the off-shore players who are now looking at acquisition targets
worldwide and the Indian service provider community is being viewed as a “strategic business
partner” – not just an IT services vendor.

The IT industry accounted for 8% of India’s GDP in 2020 and it is expected to contribute 10%
to India’s GDP by 2025. As of FY20, the IT industry employed 4.3 million people. As per a
survey by Amazon Web Services (2021), India is expected to have nine times more digitally
skilled workers by 2025. This indicates that a total of ~ 3.9 billion digital skill trainings will
be expected by 2025. As of 2021, digitally trained employees constitute 12% of the country's
workforce.

❖ Evolution of the Indian IT sector

Figure 1: India’s IT market size growing

The IT industry’s revenue is estimated at ~US$ 194 billion in FY21, an increase of 2.3% YoY.
The sector is the largest employer within the private sector. In FY20, the industry added 1.38 lakh
new employees, taking the total employment to 44.7 lakh.
The domestic revenue of the IT industry is estimated at US$ 45 billion and export revenue is
estimated at US$ 150 billion in FY21. The market size of India’s IT sector is expected to grow to
US$ 350 billion by 2025.
Spending on information technology in India is expected to reach US$ 144 billion in 2023.
Outsourcing of large technology contracts by clients is expected to accelerate the growth of the
industry in FY20. The cloud market in India is expected to grow three-fold to US$ 7.1 billion by
2022 with the help of growing adoption of Big Data, analytics, artificial intelligence and Internet
of Things (IoT) according to Cloud Next Wave of Growth in India report. India’s digital economy
is estimated to reach US$ 1 trillion by 2025. Artificial Intelligence (AI) is expected to boost India's
annual growth rate by 1.3% by 2035

Figure 2: Market size of Indian IT industry

❖ Indian IT Industry players

Over the last few decades, India has become the home of the top IT companies. These Indian
IT companies have become the global leaders in the information technology (IT) sector. This
has contributed to the growth of technology not only in India but globally. Some of the best
Indian IT companies are part of the world’s best software companies.

• TATA Consultancy Services (TCS)

Tata Consultancy service (TCS) is the Largest IT company in India in terms of Revenue.
TCS is the first Indian IT company to have a market capitalization of $100 billion and has
over 420,000 employees.
TCS is an IT services, consulting, and business solutions provider that has been partnering
with the world’s largest businesses in their transformation journeys for the last fifty years.
TCS, being one of the global leaders in the sector, generates roughly 70% of the revenue
for Tata Sons.

o Revenue: Rs 152,497 Cr
o Market Cap: Rs 845,337 Cr
o Employees: 420,000
o ROE: 35.98 %
o Sales Growth (3Yrs): 10.47 %
o Promoter holding: 72.05 %
o Market Capitalization of Rs 8,10,000 Crores

• Infosys

Infosys is an NYSE listed global consulting and IT services company with more than
228,000 employees. It is India’s second-largest IT company in terms of revenue for the
financial year 2019-20. It is one of the best IT companies in India and first to be listed on
NASDAQ. Over 37 years, the company has catalyzed some of the major changes that have
led to India’s emergence as the global destination for software services talent.

o Revenue: Rs 87,371 Cr
o Market Cap: Rs 282,028 Cr.
o Employees: 228,000
o ROE: 23.50 %
o Sales Growth (3Yrs): 9.81 %
o Promoter holding: 13.15 %
 • HCL Technologies

HCL Technologies, in terms of revenue, is one of the third largest IT companies in India,
which generated a revenue of more than ₹21,000 crores over the last four quarters and has
a strong workforce of 117,000+ employees.
The Company is a leading global IT services company that helps global enterprises re-
imagine and transform their businesses through Digital technology transformation.

o Revenue: Rs 65,643 Cr
o Market Cap: Rs 153,370 Cr.
o ROE: 25.76 %
o Sales Growth (3Yrs): 24.74 %
o Promoter holding: 60.00 %

HCL Technologies has a global network of integrated co-innovation labs and global
delivery capabilities to provide holistic services in key industry verticals including Financial
Services, Telecommunications, Manufacturing, & Healthcare, Publishing, Media, Retail &
CPG, Entertainment, Oil & Gas, Energy & Utilities, Travel, Transportation & Logistics.The
Company focuses on 1–2–3 growth strategy by providing an integrated portfolio of services.

➢ Mode 1 encompasses the core services in the areas of Applications, Infrastructure, BPO
and Engineering, and R&D services to transform clients’ business and IT landscape,
making them ‘lean’ and ‘agile’.
➢ Mode 2 focuses on experience-centric and outcome-oriented integrated offerings of Digital
& Analytics to drive business outcomes and enable enterprise digitalization.
➢ Mode 3 strategy is ecosystem–driven, creating innovative partnerships to build products
and platforms business.

❖ Notable Trends in the Sector

1) Global delivery model

Indian software product industry is expected to reach US$ 100 billion by 2025. Indian
companies are focusing to invest internationally to expand global footprint and enhance
their global delivery centers. In line with this, in February 2021, Tata Consultancy Services
announced to recruit ~1,500 technology employees across the UK over the next year. The
development would build capabilities for TCS to deliver efficiently to the UK customers.
2) India to become the data annotation and labelling hub

The data annotation market in India stood at ~ US$ 250 million in FY20, of which the US
market contributed ~ 60% to the overall value. The market is expected to reach ~ US$ 7
billion by 2030 due to accelerated domestic demand for AI.

3) New technologies

Disruptive technologies such as cloud computing, social media and data analytics are
offering new avenues of growth across verticals for IT companies. The SMAC (social,
mobility, analytics, cloud) market is expected to reach US$ 225 billion by 2020. In
February 2020, Microsoft India announced its partnership with Intel to introduce Azure
Stack HCI (a new hyper-converged infrastructure (HCI) solution) to the Indian market to
empower organizations with advanced hybrid cloud capabilities. In March 2021, Tech
Mahindra announced its partnership with Enate, a UK-based robotic process orchestration
solutions company, to offer Enate’s proprietary ‘robotic process orchestration (RPO)
technology’, which offers a BPM, workflow and workforce management platform to help
increase efficiencies and streamline operations between human employees and
technologies such as RPA bots, OCR platforms and NLP/AI/ML technologies.

4) Cloud Exponence Platform

Key players are focusing on differentiated cloud products/platforms to avail a competitive

advantage over other industry players. On January 13, 2021, TCS introduced a customized
version of ‘TCS Cloud Exponence’ on Microsoft Azure, its flagship cloud management
and orchestration platform, to offer smart managed services in hybrid cloud environments.

5) Large players gaining advantage

Large players with a wide range of capabilities are gaining ground as they move from being
simple maintenance providers to full-service players, offering infrastructure, system
integration and consulting services. Of the total revenue, about 80% is contributed by 200
large and medium players.
6) Expansion

In December 2020, Tata Consultancy Services (TCS) expanded its business operations in
Austin, Texas, with the construction of a new facility. By 2022, TCS plans to hire an
additional 130 new employees in Austin. Over the next seven years, TCS plans to invest
more than US$ 100 million in Austin.

7) Collaborations

In February 2021, HCL Technologies (HCL), announced a five-year ‘Digital Workplace

Services’ agreement with Airbus. HCL will create a modernized digital workspace for
Airbus employees worldwide to improve customer experience and service quality. In
February 2021, a global strategic partnership with Alteryx, Inc., a pioneer in analytical
process automation, was announced by HCL Technologies (APA). The alliance seeks to
help businesses around the world thrive in their goals of analytical automation and digital
transformation.

8) Most lucrative sector for investments

The computer software and hardware sector in India attracted cumulative FDI inflows
worth US$ 62.47 billion between April 2000 and September 2020, according to the data
released by the Department for Promotion of Industry and Internal Trade (DPIIT).

9) Deployment to a modern cloud

In December 2020, Infosys Finacle, part of EdgeVerve Systems, (a subsidiary of Infosys),

and RBL Bank, announced a collaboration to migrate the bank’s on-premise deployment
to a containerized ecosystem, which is managed by Kubernetes and has been certified by
Cloud Native Computing Foundation (CNCF). In December 2020, Infosys launched
Infosys Modernization Suite to help organizations accelerate their cloud modernization
needs.
 10) Bilateral ties

In January 2021, India and Japan signed a MoU to enhance cooperation in the field of
information and communications technologies, aiming to increase engagement in areas of
5G, AI and submarine fiber cable network.

❖ Mergers and Acquisitions in IT Sector:

There was a slight decrease in the global technology mergers and acquisitions activity, when
compared to years 2018 and 2019 which were blockbuster years. In 2018, SAP bought
Qualtrics for $ 8 billion, IBM acquired Red Hat for $33 billion and Broadcom picked up CA
Technologies for $18.9 billion in cash.

• Nvidia and ARM

The biggest acquisition deal of 2020 saw Nvidia, a company engaged in making power
chipsets in semiconductor for PCs and laptops, acquire ARM with a total value of $40
billion. In future, the combination of Nvidia and ARM would allow customers to combine
both the products for better user experience. The acquisition will see Nvidia acquire shares
of ARM from Softbank worth $21.5 billion in Nvidia common stock with an additional $12
billion in cash since Softbank were the majority stockholder in ARM.

• Facebook and Reliance Jio

Facebook’s acquisition in Reliance Jio saw RIL share prices hit a record high in early
months of the pandemic when the market was still reeling from record losses. A deal which
saw Facebook acquire 9.99% shares for $5.7 billion was made to connect local Kirana stores
of India and WhatsApp. The acquisition will lead the value creation for both the companies
and benefit the e-commerce sector in India. While the feature of WhatsPay and 30% cap for
UPI transactions by NPCI can pose a challenge to a competitive UPI payment market, the
investment was a major deal which followed subsequent subscription by other companies
and private equity investors.
• Byju’s and WhiteHat Jr

Indian ed-tech saw a boom after the lockdown as a large student population were forced to
study from the comfort of their homes. With a vast student population, India presents an
opportunity for these tech companies. In August 2020, Bangalore based ed-tech unicorn
Byju’s acquired WhiteHat Jr, an online coding school for young kids, for $300 million.
WhiteHat Jr. has a good presence in India and US and has plans to expand to Australia,
Canada and the UK. The deal will certainly give Byju’s an increased market share and entry
into a broader market which will, in turn, improve the company’s performance. WhiteHat
Jr. was deemed as a capital efficient company with positive cash flows. With a booming
Indian ed-tech market, Byju’s acquisition of an under-valued target in a market with many
competitors is a strategic realignment by Byju’s.

• Salesforce and Slack

Salesforce, a fortune 500 company acquired Slack in a $27 billion deal. Slack, a Freemium
software, provides communication platforms via chat rooms, messaging, private groups
with additional sharing options in documents and files. Salesforce deals in customer service
and personalized service business related to products in automobiles, sports accessories,
Hospitality services, Travel services. Some companies require major customer service as
part of continued product service given by them while selling their products. With the
acquisition of Slack, Salesforce has made a strategic move in a bid to achieve economies of
scale. By acquiring Slack, Salesforce can now create small private groups of company
representatives in chatrooms to serve consumers by addressing their personalized
requirements and complaints. With the continued presence of Mr. Steward Butterfield as
the CEO and Co-founder of Slack under a Salesforce, the unit will help the transition of
business with an ‘end-to-end’ role in serving customers.

• Facebook and Giphy

Facebook’s acquisition of Giphy at $400 million and subsequent integration with

Facebook’s messaging apps and services are aimed at giving users better visual expression
while messaging. As pandemic saw chats and private conversations shift on to phone
screens, masses wanted to interact to express themselves in innovative ways. The
acquisition can benefit Facebook in creating a more personalised experience while
interacting with friends and family. The acquisition will strengthen Facebook’s positioning
by giving them broader market access.
• Zoom and Keybase

Zoom’s first-ever acquisition of security start-up Keybase in the company’s nine-year

history would not have been a big surprise with Zoom’s woes with end-to-end encryption
in video calls after its meteoric rise during the pandemic. Zoom was at the epicentre of this
change when masses switched their meetings and conferences from physical halls and
conference rooms to Zoom meetings and waiting rooms. Privacy and data leaks still pose a
significant challenge in ensuring cybersecurity post even post completion of the deal.
However, the acquisition was heavily influenced by the onset of pandemic and isolation and
the need to have a secure platform while interacting.

• Infosys acquires Kaleidoscope Innovation

Global software major Infosys 3rd September announced it has acquired U.S.-based product
design firm Kaleidoscope Innovation for $42 million to expand its engineering service
offerings in medical devices, consumer and industrial markets across America

Figure 3: Global trends in technology sector mergers and acquisitions

❖ Major Developments in India:

• Digital Innovation Hub

India is emerging as the hub for “Digital Skills”. The country spends $1.6 bn annually on
training the workforce in the sector. The industry is the largest employer within the private
sector, employing 3.9 million people. India is transforming into a digital economy with over
450 mn plus internet subscribers; only second to China.
Indian IT industry has more than 17,000 firms, of which over 1,000 are large firms with
over 50 delivery locations in India. The country's cost competitiveness in providing IT
services, which is approximately 3-4 times more cost-effective than the US, continues to be
its unique selling proposition in the global sourcing market.
The National Optical Fiber Network (NOFN) aims to connect all 250,000 Gram Panchayats
(village councils) in the country with high-speed broadband.

Up to 100% FDI is allowed in Data processing, Software development and Computer

consultancy services; Software supply services; Business and management consultancy
services, Market research services, technical testing and Analysis services, under
automatic route
100% FDI is permitted in B2B E-commerce.

❖ Investments/Growth Drivers:
• Production Linked Incentives scheme for IT & hardware: PLI schemes for IT & hardware
worth INR 7300 crores to boost the domestic manufacturing and attract investments
• Skill Development and R&D: $1.6 billion is spent annually on training workforce and
growing R&D
• Digital India Campaign: A $20 billion investment covering mobile connectivity across
India
• Start-Up Revolution: IoT, machine learning, artificial intelligence and healthcare sector
saw a major boom in start-ups
• Artificial Intelligence: AI/new age technology is to boost India’s annual growth rate by
1.3% by 2035

❖ Interesting facts about India:

• Has the largest market share in global services sourcing industry
• Is the second largest tech start-up hub of the world
• Has the second highest number of internet subscribers in the world
❖ India is the #1 Sourcing Destination for IT-BPM globally
The IT-BPM industry stood at $177 bn in 2019 and is expected to grow to $350 bn by 2025.
The IT-BPM industry is the largest contributor to the total exports of the country, with 43% of
the IT-BPM services being exported in 2018. Total revenue from IT services and BPM for
2019-20 accounts for $135 bn. The Indian data center industry has attracted an investment of
$396 million in 2020 and has investment opportunities worth $3.7 bn over the next three years.
The sector is headed towards achieving a $1 trillion digital economy by 2022. The country has
become the global digital capabilities hub with around 75% of global digital talent present in
the country.

Figure 4: IT-BPM Clusters in India

 Figure 5: Software Parks distribution in India

❖ Government Initiatives

Some of the major initiatives taken by the Government to promote IT and ITeS sector in India
are as follows:

• India’s Ministry of Home Affairs and the National Critical Information Infrastructure
Protection Centre are working on a new national strategy to strengthen the country’s cyber
security amid allegations that Chinese intrusions may have affected operations at a key
stock exchange and supply of electricity in Mumbai.
• In Budget 2021, the government has allocated Rs. 53,108 crore (US$ 7.31 billion) to the
IT and telecom sector.
• The Department of Telecom, Government of India and Ministry of Communications,
Government of Japan signed a MoU to enhance cooperation in areas of 5G technologies,
telecom security and submarine optical fibre cable system.
• In 2020, the government released “Simplified Other Service Provider” (OSP) guidelines to
improve the ease of doing business in the IT Industry, Business Process Outsourcing (BPO)
and IT-enabled Services.
❖ Achievements

Following are the achievements of the government in the past four years:

• Digitized India Platform (DIP): Digitize India Platform (DIP) is an initiative of the
Government of India under the Digital India Programme to provide digitization services
for scanned document images or physical documents for any organization. The main
objective of this project to provide an end-to-end workflow-based IT framework for
digitization of Government records to enhance service delivery to the citizen and to
empower numerous self-identified volunteers, part-time workers, housewives, students and
general public, who add small portions of their contribution through crowdsourcing
mechanism to achieve the greater result.
• Open Government Data (OGD): The Open Government Data (OGD) Platform India has
been set-up by the National Informatics Centre (NIC) under MeitY in compliance with the
Open Data Policy (NDSAP) of India. The objective of the policy is to provide proactive
access to Government owned shareable data, along with its usage information in open/
machine readable format, through a wide area of network across the country, in a
periodically updated manner, within the framework of various related policies, rules and
acts of the Government.
• Rapid Assessment System (RAS): A continuous feedback system on e-services delivered
by Government of India and State Governments. A citizen may provide feedback using
RAS through various channels – Web Portal, Mobile App and SMS. RAS offers Localized
Feedback Forms, in 9 languages, i.e. Hindi, Gujarati, Bengali, Kannada, Malayalam,
Marathi, Punjabi, Tamil and Telugu.
• e-Taal (Electronic Transaction Aggregation & Analysis Layer): There has been a
stupendous growth in Electronic Transactions (e-Transactions) in various e-Governance
services. Currently, e-Taal has integrated with 3,646 e-Services, PAN India.
• E-District Mission Mode Project (MMP): e-District is a Mission Mode Project (MMP)
that aims at electronic delivery of identified high volume citizen centric services at the
district or sub-district level. The objectives of the e-District project are to ensure end-to-
end workflow to ensure delivery of e-Services by undertaking Business Process Re-
engineering (BPR) of services and providing easy, anywhere and anytime access to
Government services.
❖ Post Covid-19 Impact on Information Technology
• IT spending forecasts indicate continued demand for cloud infrastructure services,
and potential increases in spending on specialized software. Forecasts also anticipate
increased demand for communications equipment and telecom services as
organizations encourage employees to work from home, and schools move to online
courses.
• Most organizations do not have a tech stack in place for a reliable business-continuity
plan (BCP). Due to enhanced remote work scenarios, IT departments will play a
larger role in future BCPs, and will need help from IT service providers in procuring
devices, setting up a resilient, flexible and secure network, disaster recovery systems,
IT security, etc.
• The need for ever-faster access to data and automation will enhance the focus on
network equipment and communications as never before, speeding up 5G network
deployments and adoption of 5G equipment.
• Massive loss in opportunity for many companies who have international dealers. For
example, Apple Inc. is estimated to have at least a 10% fall in its shares because of
the lack of availability of iPhones in the market. The parts that are required to build
the iPhones are supposed to come from China, and it is facing a major lockdown.
• The spread of this deadly virus has caused a lot of tech conferences to get cancelled,
which could have been a great partnership opportunity for many companies to expand
their horizons. Due to the cancellation of these major tech conferences, there is an
estimated loss of US$ 1 Billion.
• Even after all this, compared to many other industries, the IT industry is expected to
have an enormous market boom from US$ 131 Billion in 2020 to US$ 295 in the next
five years by 2025. The main reason for this increase in the economy for this industry
is the increased demand for software and social media platforms such as Google
Hangouts, WhatsApp Video call, Zoom, and Microsoft Teams.
• Investments in smart city solutions such as the cops in China are using drones
attached with thermal sensors to identify the symptoms for coronavirus and get
immediate medical help. In Australia, the government has launched a chat-bot to keep
the citizens up to date with the situation and answer their questions so that they will
be able to decrease the spread of misleading information and stop the panic that could
be created in public. In South Korea, the local government has launched a Smartphone
app that keeps the self-quarantined employees in touch with their co-workers to keep
the updates to the work process and to ask any questions.
• Due to the coronavirus, a lot of opportunities opened up in the IT industry, such as
the growing need for the 5th generation (5G) technology. This will help increase
connections that support the primed remote interactions. This has become the top
priority for many organizations due to the pandemic. Telehealth is one of the
developing industries in the crisis.
❖ Sector wise update
Agriculture and allied activities
In 2020-21, the growth rate of agriculture is estimated to be 3.4%. While the contribution
of the sector to Gross Value Added (GVA) declined from 18.3% to 17.8% between 2014-
15 and 2019-20, it is estimated to increase to 19.9% in 2020-21. This is because the
agricultural sector faced fewer disruptions on account of the COVID-19 pandemic as
compared to non-agricultural sectors.
Under National Food Security Act, 2013, the central government provides rice and wheat at
subsidised rates (called central issue price (CIP)). The difference between the CIP and the
market price gives quantum of food subsidy. While the CIP of wheat and rice has not been
revised since the introduction of the Act, the economic cost of wheat increased from Rs
1,908.32 per quintal in 2013-14 to Rs 2,683.84 in 2020-21 (an increase of 41%). In addition,
the economic cost of rice increased from Rs 2,615.51 per quintal in 2013-14 to Rs 3,723.76
per quintal in 2020-21 (an increase of 42%). The survey observes that revision of CIP to
reduce the rising expenses on food subsidy bill.

Industry and infrastructure

The industrial sector is estimated to decline by 9.6% in 2020-21. Within the sector, highest
decline is estimated in construction (12.6%) and mining (12.4%). The contribution of the
industrial sector to GVA has declined from 32.5% in 2011-12 to 25.8% in 2020-21.
The Index of Industrial Production (IIP) growth declined by 15.5% between April-
November 2020 as compared to growth of 0.3% during same period in 2019. IIP is a
measure of industrial performance that assigns a weight of 78% to manufacturing, 14% to
mining, and 8% to electricity. Out of 407 items in IIP, the number of items which observed
growth increased from 28 in April 2020 to 171 in November 2020, thereby, indicating a
sharp economy recovery.
The National Infrastructure Pipeline was launched with an investment plan of Rs 111 lakh
crore over five years (2020-25). The project is aimed at increasing growth, competitiveness,
and employment. The state governments, central government, and the private sector will
invest 40%, 39%, and 21% in the project, respectively. The major share of the funds will
be given to: (i) energy sector (24%), (ii) roads (18%), (iii) urban infrastructure (17%), and
(iv) railways (12%).

Service sector
In 2020-21, the service sector is estimated to contract by 8.8% (with trade and hospitality
contracting the most (21.4%)) as compared to 5.5% growth in 2019-20. Software services
was the only sub-sector with positive growth (3.6%) in the period of April-September 2020.
While the pandemic led to a global slowdown in trade, the Indian service sector export
remained resilient. The net services export receipts in first half of 2020-21 was USD 41.67
billion, which is 3% higher than the service export receipts in first half of 2019-20 (USD
40.47 billion).

❖ Road Ahead
India is the topmost offshoring destination for IT companies across the world. Having
proven its capabilities in delivering both on-shore and off-shore services to global
clients, emerging technologies now offer an entire new gamut of opportunities for top
IT firms in India. The industry is expected to grow to US$ 350 billion by 2025 and
BPM is expected to account for US$ 50 55 billion of the total revenue.