Indian IT to benefit from improvement in demand, says CRISIL

Notwithstanding recent challenges, the long-term prospects for the Indian IT services industry are healthy, given India’s competitive strengths in outsourcing, the benefits of the global delivery model, and customers’ focus on cost reduction, the ratings agency has said

Ratings agency CRISIL said that it believes that Indian IT service providers have strong long-term prospects and that they are well positioned to benefit from the gradual improvement in demand, as key markets like the US and Europe show signs of economic revival.

Pawan Agrawal, director, CRISIL Ratings said, “CRISIL-rated Indian IT service providers have responded to a challenging business environment by enhancing operational efficiency, diversifying their business profiles, enhancing risk-management practices, and maintaining strong liquidity.”

Notwithstanding recent challenges, the long-term prospects for the Indian IT services industry are healthy, given India’s competitive strengths in outsourcing, the benefits of the global delivery model, and customers’ focus on cost reduction.

However, the revival of demand may be gradual, as the economies in key markets remain fragile and discretionary IT spending by customers may remain subdued over the medium term, the ratings agency said.

CRISIL said that Indian IT service providers have focused on increasing the proportion of fixed-price contracts, changing effort mix in favour of offshore operations over onsite, and improving manpower utilisation. Players have also begun to increasingly focus on high-end services such as infrastructure management and enterprise applications, which have higher margins than traditional low-end application development and maintenance services. Furthermore, most players have maintained low gearing and robust liquidity in the form of substantial cash and bank balances and liquid investments, it added.

“Given the measures implemented by IT service providers, their healthy long-term growth prospects, and strong financial risk profiles, there have been no downward revisions in the ratings of CRISIL-rated IT service providers despite the weak business environment, though a few rating outlooks have been revised downwards," said Sudip Sural, head, CRISIL Ratings, in a release.
 

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