We're cautiously optimistic on growth prospects of Indian IT industry

The Ukraine conflict is leading to fears of global slowdown as the world starts to face high food and fuel prices, leading to inflation across nations. As the conflict lingers, global technology industry may face a situation wherein clients cut down IT spend or slow down decisions on future investment. In a conversation with the Bizz Buzz, Barnik Chitran Maitra, Managing Partner & CEO of global consultancy firm, Arthur D Little (India and South Asia), said there are no signs yet with regard to slowdown in IT spend. He expects Indian IT industry to do well with rising offshoring. Clients are increasingly spending more on cybersecurity space in recent years and the trend is likely to see further acceleration owing to the current conflict. Maitra is also of the opinion that some of the emerging technologies including 5G are witnessing higher spend while new themes like metaverse are still at a nascent stage with regard to investments

People are preparing for 5G deployment in most parts of the world. India may see the rollout in late 2023 or early 2024. So, 5G is a real strategic discussion now. That is happening here and now. As far as metaverse is concerned, it is right now going through a bit of hype cycle. People are figuring out what to do through there are a few early adopters like retail, gaming industries among others. In India, people are making a lot of announcements but how much money they are spending is to be seen

Historically, global IT spend grows around 3% per annum. This has increased to 4.5 to 5% during the last two years (owing to pandemic). Within the IT spend, there are three different buckets. There is insourced, onshore; outsourced, onshore; and outsourced, offshore. The biggest change that is influencing the IT spend is the movement to cloud. When everything goes to cloud then the insourced, onshore starts getting reduced and moves to outsourced and offshore stack. Pre-pandemic, the outsourced & offshore part used to grow at 12-13%. We are very optimistic about the growth of outsourcing industry for the next five years which can grow at 14-15%

Russia-Ukraine conflict has heightened the risks of cybersecurity attacks across the globe. Such risk is especially higher for the American and European enterprises. How do you see the overall cybersecurity threat landscape in this regard? How is the overall spend likely to pan out in coming years?

Cybersecurity is a board level agenda for all European and American multinationals. If you see Fortune-1,000 companies around the world, it is a topic which is discussed at the board level in every single meeting. Most Fortune-500 companies, they have Chief Information Security Officers. In the last 4-5 years, every company has multiplied their spending on cybersecurity. They are spending far more on things like how to respond when a breach happens; they are spending on predictive analytics to predict when the next such thing will occur and many such other things. Companies including ours have raised the threat level to the highest.

As far as India is concerned, Indian enterprises are increasing their awareness in this front. In the last 12 months, there are a lot of companies which have revamped their entire cybersecurity portfolios and are buying a lot of cybersecurity tools and licenses. As far as preparedness of Indian companies as compared to their American counterparts, there are some distance to move.

How Indian IT companies are helping global enterprises in creating a robust cybersecurity architecture? Is their role really significant?

Most companies' mission critical and business sensitive data still remains in onshore locations. In the vendor ecosystem, the vulnerabilities lie with the company. Secondly, Indian IT services providers also provide some layers of cybersecurity in case of providing remote infrastructure management kind of services to clients. However, cybersecurity threats are fairly sophisticated now. So, companies are preferring to buy solutions from specialised players apart from buying some base level of solutions from IT vendors.

In the wake-up ongoing conflict and changing geo-political landscape, do you anticipate change in the IT spend in FY23? What are your views on the overall demand environment?

Historically, global IT spend grows around 3 per cent per annum. This has increased to 4.5 to 5 per cent during the last two years (owing to pandemic). Within the IT spend, there are three different buckets. There is insourced, onshore; outsourced, onshore; and outsourced, offshore. The biggest change that is influencing the IT spend is the movement to cloud. When everything goes to cloud then the insourced, onshore starts getting reduced and moves to outsourced and offshore stack. Pre-pandemic, the outsourced & offshore part used to grow at 12-13 per cent. We are very optimistic about the growth of outsourcing industry for the next five years which can grow at 14-15 per cent. We are cautiously optimistic about the prospects of Indian IT industry. However, one thing to note that a lot of these spending is getting delinked from headcount growth. The environment is very conducive, but the question is what price point and margin. Offshoring is like a consumer trend which got a big push due to Covid pandemic. What could have taken five years, the pandemic has done that in last 18 months (with respect to offshoring).

Does the Ukraine conflict pose any specific challenge to the global IT industry? What are your views on the Indian IT industry in this aspect?

I don't think, there is much impact on the Indian IT industry. Rather, Indian IT players can outsource more work to India due to this conflict. That will be margin accretive for them. For the global IT industry, none of them actually understand the impact of this conflict. However, we have not seen any actual slowdown so far. While there are so many talks and risks, it has not shown up on the business yet. At the end of the day, those companies may see impact which has high dependence on Russian energy. For companies which have high dependence on US and UK markets, the risk is not that high. Right now, nobody has seen any impact. But, we may see some negative commentary if the war continues for another 4-6 weeks. For the March quarter, we have not seen any impact. Whatever negative impact will happen, that will show up in the next quarter. We have spoken to clients and other enterprises, no risk has been flagged up yet.

How do you see new age technologies like 5G, metaverse and others driving the growth for the IT industry?

People are preparing for 5G deployment in most part of the world. India may see the rollout in late 2023 or early 2024. So, 5G is a real strategic discussion now. That is happening here and now. As far as metaverse is concerned, it is right now going through a bit of hype cycle. People are figuring out what to do though there are a few early adopters like retail, gaming industries among others. In India, people are making a lot of announcements but how much money they are spending is to be seen.