 "Renewals to drive growth for IT firms in FY15")
The ISG data also showed last year, smallest annual contract value band continued to dominate---$100-million deals accounted for 20% of the deals, $40-99-million deals 20% and $5-39-million deals accounted for 60%. The total number of contracts in the $5-39-million segment was 1,063, against 68 is the $40-99-million category and 24 in the $100-million segment.
Analyst say in FY15, growth will primarily come from large deal renewals. "While there has been euphoria in many quarters about a strong demand environment for IT services in the developed world, we think overall IT budgets will increase only modestly, given S&P 500 revenue growth remains tepid," Ravi Menon of Centrum said in a report.
Smaller deals will also mean large IT companies will have an upper hand over tier-II IT firms. "During FY06-FY13, barring FY11 onwards, tier-II has mostly underperformed tier-I, in terms of growth, despite the advantages of a much smaller base. There has been virtually no gain by tier-II in market share, even excluding Cognizant from tier-I, and growth rates have been converging. With increasingly sophisticated managed services/fixed price deals and investments in vertical expertise and new areas of spending such as analytics and mobility, we expect tier-I to match or exceed tier-II growth during FY15-FY16," Menon said.
The report adds niche players will fare better in the mid-cap segment. "Niche mid-cap firms (Infotech Enterprises, Persistent Systems and eClerx) have weathered downturns better than traditional mid-cap firms (Mindtree, Hexaware and KPIT) and have always been in line or ahead of large-caps, in terms of growth. We expect this to continue, as they do not suffer from the lack of differentiation that dogs traditional mid-cap players."
It added, "Through the last eight quarters, large-caps have narrowed the growth differential and even outgrown mid-caps. We expect this trend to continue and large-caps to outperform traditional mid-caps in terms of revenue growth over FY15-16 estimated earnings."
For the first half of 2014, the ISG survey predicts global markets to rise five%. It added service providers' responses to the changing sourcing market dynamics would be vital to their success.