IT and ITES on growth path
IT-ITES sector revenues are expected to touch $64 billion (RS 2,56,000 crore) in 2007-08, up 33 per cent over 2006-07. Exports ($40 billion or Rs 1,60,000 crore), are growing at 27 per cent, while the domestic market ($24 billion or Rs 96,000 crore) is estimated to grow at 43 per cent.
The US and the UK remain the key markets for the Indian IT-ITES exports accounting for nearly 80 per cent of the total exports. Key industry trends include shift by buyers toward multi-sourcing, service line diversification by providers and increased geographic diversification.
The challenges faced by the industry include rising manpower costs, appreciating rupee, escalating real estate prices, slowdown in key export markets (US) and expiry of tax holiday post March 31, 2009.
The sector witnessed over 100 M&A deals accounting for nearly $3 billion or Rs 12,000 core in 2007. One of the largest deals was the acquisition of US Healthcare player MedAssist by FirstSource for approximately $330 million (Rs 1,320 crore). Expansion of client base and access to new products markets continued to be the drivers for these transactions.
Infosys: All IT and ITES companies, including Infosys, Wipro, Satyam, HCL and others, will be impacted by a higher tax outflow on account of addition of Deferred Tax and DDT to book profits for MAT purposes. However, there would be no impact of the new service tax on domestic software development service on software exporters like Infosys, who can claim refund of the same now
“The Budget has not been positive for the IT industry. Smaller companies should have been given tax relief to counter the impact of a sharply appreciated rupee”
- Microsoft: The rise in the price of packaged software on account of an increase in excise duty on it from 8 per cent to 12 per cent could impact the sales of companies like Microsoft, and may also encourage sale of pirated software
- TCS: It could benefit from the initiatve on National Electronic Trading platform'
- HCL: Players like Satyam and HCL that have a greater presence in the domestic market and networking major like Cisco stand to gain from the rural broadband initiative announced in the Budget
- Tax holidays for STPs/EOUs not extended beyond March 31, 2009. Addition of items such as Deferred Tax and DDT to book profits for MAT purposes would result in a higher tax outflow for IT/ITeS companies going forward
- Domestic software development services would now be subject to 12.36 per cent service tax. Software exporters can, however, claim a refund of input service tax, which was hitherto not possible
- Packaged software sales in India to cost more on account of increase in excise duty from 8 per to 12 per cent