In addition, four factors augur well for Indian IT companies. One, there is a sizeable pent-up demand as companies have not refreshed their IT systems in the last three or four years. Two, business verticals such as entertainment, healthcare and retail have undergone significant changes recently and their IT systems need upgrades. Three, new compliance norms require companies to invest afresh in IT. And four, companies want to develop capabilities in emerging areas, such as mobile commerce, that need fresh IT plumbing. With limited budgets, companies are increasingly outsourcing work to low-cost service providers. Also, Indian companies have reported that discretionary IT spending is back after being cut in the slowdown, which is good news for Indian IT service providers. These are large multi-year deals that bring a great deal of predictability to the business of companies. Some companies, such as TCS and Cognizant, have even reported strong growth in Europe. Still, pricing power is yet to return to the industry. That’s because most of the business is from re-bids, where the client looks for rock-bottom prices. Companies are bidding aggressively for these orders. As a result, prices are either flat or, in some cases, even on the decline. For full recovery, prices have to rise. There is no sign of that.
While the US is on the mend, the Indian market has turned lacklustre. The enterprise market has almost dried up. However, the proposed new banks will help companies, such as Infosys, that specialise in the BFSI (banking, financial services and insurance) vertical to get some business. Large deals have become rare now. The government market (largely e-governance) is still alive, but such orders take long to materialise and profit margins are very thin. With general elections due next year, no new large orders from the government are expected in the months to come.