Rise of Indian IT Industry and the Investment Opportunity

What is behind Indian IT Industry’s rise? And how to benefit from it? What is the key strength behind this trend? India’s talent base Investment opportunity backed by favourable medium term outlook

The fact that technology now is a part of almost everything we do, is hidden to no one. In fact, increasing use of technology in the way we live and do business has resulted in technology spends increasing as a % of India’s GDP from 1.1% in 2006 to 2.3% in 2022!

In fact, India’s economy has seen a significant boost from the development of the IT industry, which has grown by leaps and bounds. From less than 1% share of global spending in 1999, Indian IT industry now captures approximately 15% of global IT services spending. In fact, while the technology industry went through multiple cycles within this period, Indian IT industry showed resilience, adopted new technologies and has increased its share.

What is the key strength behind this trend? India’s talent base

1. India’s talent base is not only large; it ranks amongst the best in tech talent availability

2. Major countries such as the United States of America have a serious tech talent shortage – which is fulfilled by Indians and Indian IT firms

India’s technology landscape presents a compelling investment opportunity. The Rapid growth of startups, increasing adoption of tech-enabled services, supportive government policies and global interest collectively create an environment to consider investing in India’s Thriving technology sector.

HDFC Technology Fund, which invests at least 80% of its Net Assets in equity and equity related instruments of in technology & technology related companies, presents a viable investment avenue for investors looking to invest in this space.

3. Indian IT industry has shown the ability to evolve stronger through change

Historically, Indian IT industry has successfully tackled trends and technologies such as

• Offshoring, Application Outsourcing, Enterprise Resource Planning (ERP) Implementation
• Remote Infrastructure Management Services, BPO
   

In recent years, New technologies and trends such as Digital and SaaS (Software as a Service) have also been successfully tackled, with the digital segment now accounting for around 32-34% of overall Indian IT revenues. This resilience of the industry backed by continuous upgradation of skills has allowed Indian IT industry to grow.

Investment opportunity backed by favourable medium term outlook

Global technology spends are expected to grow at 10% in dollar terms over FY22 to FY27 (Source: Gartner). Additionally, market share gains by the Indian IT industry and some depreciation of the rupee could add to this high growth in technology revenues. The past 20 years have seen average depreciation in the rupee of about 3%.

Further, the technology space currently exhibits healthy fundamentals relative to the broader market, while being available at reasonable valuations. With the industry having a long runway for growth, this space becomes an interesting investment opportunity. One way to participate in this story could be investing in our new fund offering (NFO), the HDFC Technology Fund. The NFO opened on August 25, 2023, and closes on September 05, 2023.

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