The year that passed by was one of the toughest in the decade for the Indian IT industry, which reeled under the impact of the worst-ever global economic crisis.
It was a reality check for the industry, with companies facing huge uncertainty on their business outlook for most part of the year as customers held back or cancelled investments in new technology.
Towards the close of the year, the industry began to show early signs of recovery, with customers starting to take decisions on IT spends.
Shares move upReflecting the sentiment, shares of IT companies such as Infosys, Wipro, and HCL Technologies touched 52-week high in the past week, as against yearly-lows in January-March. The BSE IT Index also touched the year's high of 5190 on December 24 as against 1987 on February 24.
The image of the industry took a hit at the beginning of the year due to the $1.4-billion fraud at Satyam Computers. The timely government intervention did mitigate the impact resulting in buy-out of the Hyderabad-based firm by the Mahindras.
On an optimistic note, implementing the learnings from previous downturn in 2001-02, the large and mid-size vendors managed to handle the changing market dynamics effectively by continuing to invest in newer service offerings and expanded their delivery footprint overseas. The smaller firms, however, bore the brunt of the downturn.
The economic crisis, triggered in September 2008, had forced the Indian IT firms to innovate, finetune their business model and tighten the cost structures as the volatile currency movement affected the earnings and pricing power came under pressure with clients seeking hefty discounts of 5-20 per cent.
Such a trend not only exerted pressure on the profit margins, but also forced the companies to shed their flab, resulting in an increase in forced attrition. Though wage cuts and pay hike deferrals were more pronounced till the middle of the year, the situation improved over the past few months, companies have started effecting wage hikes and firmed up their hiring plans for the next year.
Vendor consolidation
Vendors do expect stability in the pricing going forward in 2010. A clearer picture on the 2010 budgets was expected by the end of January-March quarter though some players feel that the 2010 budgets may stay flat over 2009. The consolidation in the market place is expected to benefit the Indian vendors as they are still able to offer the cost arbitrage when compared their global counterparts.
The large Indian players have gained from the recent vendor consolidation exercises at large global clients such as BP Plc, Nokia Siemens Networks, Telstra and Aviva among others.
New pricing models based on fixed price, pay-by-use and ticket-based pricing gained currency in 2009 as the outsourcers demonstrated cost savings to their customers from such newer engagement models. The Indian vendors expect their share of revenues from such newer pricing models to go up as compared to the traditional time and material projects, where billing is done on an hourly basis for the number of persons deployed on the projects.
Newer services
2009 also saw the Indian vendors launch newer services offerings on pay-by-use or Software-as-a-Service model through cloud computing initiatives.
Companies like Wipro have set up private cloud to test and deploy their applications internally to showcase to their customers.
The year saw the large vendors sharpen their focus on the domestic market, where the emergence of large IT deals acted as an offset to the slump in business from traditional markets in US and Europe.
Indian vendors also expanded their global footprint by setting up delivery locations in Latin America, where they see traction in the market place. The industry witnessed merger and acquisition activity on a moderate scale where companies picked up the captive units and smaller niche firms to enhance their competencies.
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