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he second COVID-19 wave has had a limited impact on the Indian Technology sector so far, based on the March quarter results announced by listed companies. Though the severity of the second wave has hit human life severely, the impact on business has been minimal, supported by a robust demand environment that is translating to an optimistic outlook for FY22. The maturity of the remote work delivery model and distributed workforce has also helped minimize impact. Going forward, with increasing vaccinations, economic recovery in end-markets is expected to be positive for discretionary spending and lead to a demand revival in sectors worst hit by the pandemic.
We expect sequential growth to continue in 1QFY22 as the second COVID-19 wave is expected to have minimal impact on business owing to strong demand and the majority of the workforce is remote and distributed across locations. The cross-currency impact is expected to be a tailwind in 1QFY22. Most global technology companies have also reported positive revenue growth, with several increasing CY21/FY22 revenue growth guidance. Overall, expectations for the next quarter remain positive.
Expectations of a faster recovery in global economic growth and technology spending….
1.Global Economy - Global GDP is expected to increase by 5.6% in 2021 (an improvement of 1.5 percentage points from the January 2021 World Bank estimate). Vaccination rollouts across the world is generating increased confidence for the global economy. This boost in growth is expected to continue next year as well- global GDP is projected to grow by 4.3% in 2022.
2.Global Technology Spending - According to Gartner Inc’s projections (as of April 2021), global technology spend12 growth is expected to witness a y-o-y growth of 9.5% in 2021, a significant improvement compared with their previous projections of growth at 6.9% (as of January 2021).
….Setting a positive demand outlook for Indian IT companies…
3. According to ISG, global ACVs reached an all-time high of US$17.1 billion during the quarter registering a growth of 11% y-o-y.
Another strong quarter for a deal pipeline across the Indian technology sector
….Which is reflected in the positive fourth-quarter results……
4.Revenues increased 3.9% q-o-q as demand continued to witness improvement led by digital transformation and cloud migration projects.
6.Net client addition remained positive- most companies witnessing new additions. Revenue per client increased on a sequential basis driven by growth in revenues.
…. And the outlook for FY22, which is riding on the “Double-digit growth theme”…
7. The majority of companies in the IT services segment are optimistic about the growth scenario and are supporting guidance for double-digit growth for FY22. Sequential growth in the next quarter is expected to continue as the second wave of Covid-19 is expected to have minimal impact owing to strong demand and the majority of the workforce is remote and distributed across locations.
….. While the talent matrix seems to be the only near-term challenge
8.Employee count increased 3.4% q-o-q; and was up 5.2% y-o-y as hiring continued to pick up steam during the quarter with companies highlighting more hiring plans for the rest of 2021. Firms also recorded an uptick in utilization levels during the quarter.
We expect sequential growth to continue in 1QFY22 as the second COVID-19 wave is expected to have minimal impact on business owing to strong demand and the majority of the workforce is remote and distributed across locations. The cross-currency impact is expected to be a tailwind in 1QFY22. Most global technology companies have also reported positive revenue growth, with several increasing CY21/FY22 revenue growth guidance. Overall, expectations for the next quarter remain positive.
Expectations of a faster recovery in global economic growth and technology spending….
1.Global Economy - Global GDP is expected to increase by 5.6% in 2021 (an improvement of 1.5 percentage points from the January 2021 World Bank estimate). Vaccination rollouts across the world is generating increased confidence for the global economy. This boost in growth is expected to continue next year as well- global GDP is projected to grow by 4.3% in 2022.
2.Global Technology Spending - According to Gartner Inc’s projections (as of April 2021), global technology spend12 growth is expected to witness a y-o-y growth of 9.5% in 2021, a significant improvement compared with their previous projections of growth at 6.9% (as of January 2021).
….Setting a positive demand outlook for Indian IT companies…
3. According to ISG, global ACVs reached an all-time high of US$17.1 billion during the quarter registering a growth of 11% y-o-y.
- Managed services’ ACV - The key operating space for Indian IT companies registered a growth of 5.9% y-o-y, at US$7.2 billion. ADM (Application Development and Management Services) activity was at an all-time high.
- As-a Service ACV - Increased 15.1% y-o-y to US$9.9 billion again at an all-time high, however, y-o-y growth slowed down compared to the previous quarter
Another strong quarter for a deal pipeline across the Indian technology sector
- Strong Deal Pipeline - During 4QFY21 the companies announced a deal pipeline of over US$16 billion.
….Which is reflected in the positive fourth-quarter results……
4.Revenues increased 3.9% q-o-q as demand continued to witness improvement led by digital transformation and cloud migration projects.
- Digital revenues - Grew at 5.5% sequentially, share of digital (of select companies) increased to a total revenue share of 51.2% during the quarter.
- Geographic Markets - All the major markets witnessed growth in revenues sequentially as well as y-o-y. North America continued to witness recovery with Europe maintaining a healthy growth trend.
- Verticals – All segments continued to witness growth sequentially as well as y-o-y led by BFSI.
6.Net client addition remained positive- most companies witnessing new additions. Revenue per client increased on a sequential basis driven by growth in revenues.
…. And the outlook for FY22, which is riding on the “Double-digit growth theme”…
7. The majority of companies in the IT services segment are optimistic about the growth scenario and are supporting guidance for double-digit growth for FY22. Sequential growth in the next quarter is expected to continue as the second wave of Covid-19 is expected to have minimal impact owing to strong demand and the majority of the workforce is remote and distributed across locations.
….. While the talent matrix seems to be the only near-term challenge
8.Employee count increased 3.4% q-o-q; and was up 5.2% y-o-y as hiring continued to pick up steam during the quarter with companies highlighting more hiring plans for the rest of 2021. Firms also recorded an uptick in utilization levels during the quarter.
- However, attrition rate has started to inch up, growing to 15% this quarter from 13.7% reported last quarter. A key reason being the rising demand for new-age skills which supports the optimistic hiring plans as well as the increased focus on reskilling.