Moody's: IT services sector will maintain market share gains despite headwinds

Moody's Investors Service says the Indian IT services sector will maintain global market share gains, supported by expanding coverage and operating efficiencies, albeit at a moderate pace.

"We expect Indian IT services companies to maintain market share gains while preserving their EBITDA margins in the 21%-22% range," says Kaustubh Chaubal, a Moody's Vice President and Senior Analyst.

"And economic stability in developed countries -- which account for 90% of exports by the Indian IT services sector -- will fuel growth for the global IT services outsourcing industry, benefiting Indian IT services companies in particular," adds Chaubal.

However, Moody's notes that currency volatility will pressure growth estimates; while the Indian rupee (INR) has seen sustained depreciation against the USD since April 2011, the US dollar (USD) is appreciating against other major currencies, leading to cross currency volatility and conversion impact on growth estimates.

"While revenue is predominantly denominated in USD and euro for the Indian IT services sector, the cost base remains primarily denominated in INR, resulting in a potential mismatch," adds Chaubal.

The report notes that revenue growth for Indian IT services companies slowed down to 13.0% (compound annual growth rate) in the fiscal year ended 31 March 2015 (FY2015) from 23.2% in FY2010-14 due to headwinds.

These headwinds include sluggish developed economies, constrained IT budgets, evolving delivery models -- such as cloud computing -- and pricing pressure.

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