The credit report of IT services companies in India is anticipated to stay steady in spite of stress on income margins and growth, Icra, the rating agency, claimed to the media. “In spite of pressures on margins and growth over the medium phase, free cash flows of IT services firms in India are anticipated to stay healthy although there might be control in the quantum of these flows of cash,” Icra claimed to the media in a statement. It claimed that the credit report of these firms is also backed by overall cash position with noteworthy liquidity in the form of extra spending made out of previous cash flows, in spite of vigorous share buybacks and dividend payout.
“The development of IT services firms in India is affected by reduced demand headed by lower deal sizes in digital technologies, unsure macroeconomic atmosphere, high competitive intensity, and cloud adoption from international as well as local players,” Gaurav Jain, Vice-President of Icra, claimed to the media in an interview. He further claimed that the Indian IT firms are in the middle of reorienting their commerce models, aiming extra on higher-end services such as emerging technologies (digital) and IT consulting. Market share of the IT services companies in India for the worldwide IT sourcing market positioned at 67% in 2016 in comparison to 60% in 2012.
“We anticipate huge IT firms in India to grab an increased share of the sector for digital services over the upcoming 3 Years,” he claimed. Jain also claimed that the margins for IT services companies in India will carry on to reflect the difficult environment for operating. This comprises wage inflation, pricing pressure, lower discretionary spend by corporate, and higher onsite costs necessitated by visa curbs. As per Jain, the sector is boosting efficiencies via consumption of working levers such as lesser idle resources, higher share of fixed cost deals, and automation benefits.
“On the other hand, these reasons will offer restricted cushion resulting in overall drop in margins to 21.2% in FY2020 from 23.5% in FY2017. The productivity for IT services companies in India stay sensitive to INR reduction as compared to main currencies such as pound, US dollar, and euro,” he claimed.