India’s IT majors hit a sweet spot due to geopolitics and domestic innovation

There was a time over two decades ago when India’s IT services majors—TCS, Infosys, HCL, Wipro and Tech Mahindra—were the darlings of global investors. In the era before the convergence of social media, e-commerce and the smartphone, Indian giants (along with a handful of US companies like IBM and HP) epitomized the promise and potential of information technology.

The height of their influence was the Y2K phenomenon – when computers were expected to malfunction or simply shut down if their internal clocks could not recognize the year 2000 – which led to an increase in corporate spending on all things IT. However, the new millennium has not been kind to India’s IT players, as they have been virtually crushed by the global tech giants: Apple, Alphabet, Microsoft, Meta and Amazon (as well as their Chinese counterparts such as Alibaba and Tencent).

As the global giants piled up record profits and trillion-dollar market capitalizations, India’s big IT companies have been getting less attention from investors and the media, with some analysts even describing them as existing, struggling to get by on low margin, commoditized parts of the IT services business.

These hasty conclusions look increasingly like a mistake, as India’s top five IT companies are not only thriving financially, but are well-positioned to benefit from a potent cocktail of increasingly sophisticated business offerings, favorable geopolitics, domestic innovation and tectonics. changes in the way information is provided. access and processing.

There is strength in numbers and collectively, TCS, Infosys, HCL, Wipro and Tech Mahindra are likely to report combined revenue of around $75 billion in the last financial year, have a market capitalization of around $300 billion (lower should be said than $480 billion of Meta), employ over 1.7 million staff worldwide and yes, they all make healthy profits. Together, India’s IT services sector generated exports of $156 billion in the 2021-2022 financial year, according to official data.

Not bad for an industry and group of companies that had been all but forgotten in the investor rush since 2007 that favored American and Chinese Big Tech companies. As the fortunes of both reverse—in America due to a tech backlash and a shift in investor preferences toward value stocks rather than growth, and in China due to a suffocating regulatory crackdown—Indian IT majors are well-placed to four reasons.

When I was a journalist in India in the 1980s, IT service companies were derisively referred to as “body buyers” because they were essentially hiring IT staff at home to work abroad on short-term contracts with clients. Major IT companies have significantly evolved their business models since then and today are at the forefront of providing expertise across the spectrum of services covering cloud, cyber security, IT governance and consulting. This is a big turn.

The geopolitical environment has also transformed since 2016, with clear and sustained competition between America and China for technological supremacy. In this battle, India happens to be well positioned as an American ally and member of the Quad, whose foreign ministers met in New Delhi last week and pledged cooperation in areas such as supply chain resilience.

Indian IT majors already have a sizeable business footprint in America and Europe, and this is set to expand further as they are seen as a preferred global supplier of software and services. As data standards between China and America decouple, a phenomenon already underway, Indian companies and their American counterparts stand to benefit as companies retool systems and processes.

A third cause for optimism for Indian majors is the country’s domestic innovation, a phenomenon that has accelerated over the past two decades. India’s global innovation in digital identity and payments, called the India Stack, is driving inclusion at home and has positive spin-off benefits for large companies. Much of the developed and developing world wishes to have access to this expertise. It is no coincidence that the originator of India’s digital identity program, Aadhar, is Nandan Nilekani, co-founder and Chairman of Infosys.

A final reason for optimism is disruption in technology, evidenced by the recent craze for genetic artificial intelligence. While a slowdown in corporate hardware and cloud spending is inevitable due to economic headwinds in America and Europe (and will affect Indian majors), they are also likely to benefit from business model transformation. While the AI ​​phenomenon is very different in scope and goal compared to the Y2K scare of the early 2000s, there are some commonalities. What connects them is their ability to disrupt business models, forcing companies to reshape the way they run their businesses. Indian IT companies are likely to experience an investment renaissance this decade.

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