India’s IT Sector Analysis: A Powerhouse Driving Economic Growth

The IT & BPM sector has become a major driver of economic growth in India, significantly contributing to both GDP and social development. In FY23, it accounted for 7.5% of India’s GDP, and this share is anticipated to rise to 10% by 2025.

With digital technology reaching all areas of business, India is primed for the next stage in its IT journey. The country is home to one of the largest internet user bases worldwide, offering some of the lowest data costs. Around 760 million people in India now have access to the internet, positioning India as a leader in digital adoption. This rapid digital growth has been made possible through government initiatives, private sector innovation, and the Digital India program, which have all helped expand digital access and infrastructure.

In this article, learn about the Indian IT sector growth, along with the SWOT analysis and the stocks involved. 

IT Sector Growth in India

The Indian IT industry has seen impressive growth, reaching $227 billion in revenue in FY22, a 15.5% increase from the previous year. It is estimated to grow to $245 billion in FY23. In 2024, IT spending in India is expected to grow by 11.1%, reaching $138.6 billion, up from $124.7 billion in the previous year. By 2025, the Indian software product industry is projected to hit $100 billion as companies seek to expand globally.

The data annotation market in India was valued at $250 million in FY20, with the U.S. market making up 60% of that total. This market is expected to grow to $7 billion by 2030, driven by increasing demand for AI. Overall, India’s IT sector is likely to reach $350 billion by 2026, contributing 10% to the country’s GDP, according to Infomerics Ratings.

In FY23, India’s IT export revenue rose by 9% in constant currency terms to $194 billion, with IT services making up over 51% of total exports. Business Process Management (BPM) and software products together accounted for 22% and 25% of total IT exports, respectively.

SWOT Analysis of the IT & BPM Sector in India

Strengths

1. Robust Growth: The IT sector has consistently shown impressive growth, reaching $227 billion in revenue in FY22 and projected to reach $350 billion by 2026.
2. Skilled Workforce: India has a large pool of technically skilled professionals, with a significant number of graduates in IT and related fields every year.
3. Cost-Effectiveness: The sector benefits from low operational costs compared to developed countries, making it an attractive destination for global outsourcing.

Weaknesses

1. Dependence on Global Markets: The IT sector relies heavily on overseas markets, particularly the U.S., making it vulnerable to global economic fluctuations.
2. Talent Shortage in Emerging Technologies: While there is a large workforce, there is a shortage of specialised skills in emerging technologies like AI, machine learning, and cybersecurity.
3. Infrastructure Challenges: Despite improvements, certain regions still need to improve their infrastructure, hindering business operations and scalability.

Opportunities

1. Expansion of Digital Services: Increasing digital adoption across various industries presents opportunities for IT firms to expand their services, particularly in cloud computing and cybersecurity.
2. Growth of AI and Automation: The rising demand for AI solutions and automation tools offers IT companies a chance to innovate and capture new markets.
3. Government Initiatives: Continued government support and investment in technology infrastructure can spur further growth and development in the sector.

Threats

1. Intense Competition: The sector faces stiff competition from other emerging economies, such as China and the Philippines, which also offer IT and BPM services at competitive rates.
2. Regulatory Challenges: Changes in government regulations, particularly related to data privacy and security, can impact operational processes and compliance costs.
3. Geopolitical Tensions: Global geopolitical issues, such as trade wars and conflicts, can disrupt international business operations and impact demand for IT services.

Government Initiatives

The Indian government has implemented several key initiatives to support the IT and IT-enabled Services (ITeS) sector:

• In the Union Budget 2024-25, Finance Minister Nirmala Sitharaman allocated ₹1,16,342 crore (about $13.98 billion) for the IT and Telecom sectors.
• In March 2024, the Cabinet approved over ₹10,300 crore (around $1.2 billion) for the IndiaAI Mission, which aims to enhance the country’s AI ecosystem.
• The government is focusing on areas like cybersecurity, hyper-scale computing, AI, and blockchain, with data costs being among the lowest globally at ₹10/GB (approximately $0.12/GB).
• The PLI Scheme – 2.0 for IT hardware was approved with a budget of ₹17,000 crore (about $2.06 billion).

Future Outlook

India continues to be the leading offshoring destination for IT services globally. With proven expertise in delivering both onshore and offshore services, emerging technologies present new opportunities for Indian IT firms.

• IT spending in India is projected to grow 11.1% in 2024, reaching $138.6 billion, up from $124.7 billion in the previous year.
• The public cloud services market is expected to expand from $3.8 billion in the first half of 2023 to $17.8 billion by 2027.
• By 2026, the increased use of cloud technology could create 14 million jobs and contribute $380 billion to India’s GDP.
• According to a survey by Amazon Web Services in 2021, India is anticipated to have nine times more digitally skilled workers by 2025.

Let us now have a look at the top IT stocks in India based on Market capitalisation

Note: The stocks mentioned above have been selected from the IT sector and sorted based on Market capitalisation as of October 29, 2024, from the Nifty 500 universe.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.