Embracing India’s Techvolution!

India has been at the forefront in scaling up the digital ecosystem is proving to be rewarding for India.

As per Reserve Bank of India, the share of India’s core digital economy increased from 5.4% of Gross Value Added (GVA) in 2014 to 8.5% in 2019. In US dollar terms, India’s digital economy exhibited a growth rate of 15.6% over the period 2014 to 2019, which was 2.4 times the growth of the Indian economy. Further, the share of digitally enabled sectors was estimated at 22.4% in 2019.

A study conducted by Ministry of Electronics and Information Technology (MeiTY) in 2019 estimated the size of India’s digital economy at USD 200 billion in 2019, which was expected to rise to USD 500 billion by 2025 in their ‘business as usual’ scenario.

Why is Indian IT an investment opportunity?

• IndiaStack – Enabling long runway for growth for Digital India

  Faster growth is a result of higher adoption of Internet by smartphone users – with India having ‘leapfrogged’ the internet on desktops to internet on smartphones at scale. Powering the digital services by government and private entities is the India Stack. The India Stack is a decentralised, low cost public digital infrastructure that allows governments, businesses and individuals in India to leverage the power of technology. The JAM trinity (Jan Dhan, Aadhar and Mobile) arise from the IndiaStack, with the first two being integral parts of it.

• Participate in Increasing Tech Intensity through consistent share gainers

a) Evolution of Indian IT through Different Technology Cycles

While the IT Industry has gone through different technology cycles, Indian IT has evolved stronger with growth in exports consistently outgrowing global spending. Further to that, Indian IT revenue as a percentage of GDP has become sizeable over the years (~7.5% in FY2023). It is expected the revenue could double to USD 500 billion by FY2030.

Source: NASSCOM, Industry Reports, *BPM: Business Process Management, **ERP: Enterprise Resource Planning, #BPO: Business Process Outsourcing

b) Talent – India’s Key Moat in the Tech World

As per NASSCOM, currently, India ranks amongst the best in tech talent availability in addition to a large talent pool. With the highest number of Science, Technology, Engineering and Mathematics (STEM) graduates on yearly basis, the Indian workforce is highly skilled – one of the top-ranked talents in terms of Artificial Intelligence skills, second largest in terms of AI / ML Business Development Associate talent pool and third in terms of installed supply of Cloud professionals.

Source: Publicly Available Information (Latest data available as of 2021)

c) Indian IT is diverse and gives global exposure

Indian IT companies generate revenue from across the globe, with more than 60% of the revenue coming from the United States of America. Indian IT revenues benefit from Indian National Rupee depreciation. Just for context, the USD revenue CAGR of Indian IT between FY2002 and FY2023 has been 16%. With the USD INR depreciation being 3% over the same period, the INR revenue CAGR of Indian IT was 19%.

Conclusion

In India, large adoption of digitalisation is expected to improve innovation, productivity, formalisation and efficiency of the Indian economy. While concerns of a global slowdown have been clouding the optimism in IT, the deals signed by Indian IT industry has remained robust, indicating the strong intent to spend by enterprises. Further to that, India’s digital consumption is expected to increase across different platforms, with e-commerce penetration projected to double by 2025.

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 period starts on August 25, 2023, and closes on September 05, 2023.

Sources: NASSCOM, Bloomberg, Industry Reports, and other publicly available information

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