India Information Technology Report Q3 2012

BMI View: Indian IT spending is expected to reach US$20.3bn in 2012, up 14%, with government IT procurements at state and federal level helping to generate spending. Despite a dip in Q411, due largely to exogenous factors, Indias potentially vast IT market appears set to continue a strong recovery in 2012 owing to a growing economy and healthy consumer sentiment. Realisation of the markets long-term potential depends on raising Indias low computer penetration and the governments ambitions to connect the vast rural areas to the outside world. The next layer of tier-3 and tier-4 towns, beyond the top 75 cities in India, is expected to be the major growth driver for the next few years, due to rising PC penetration.

Headline Expenditure Projections

Computer hardware sales: US$8.3bn in 2011 to US$9.3bn in 2012, +11.0% in US dollar terms. Forecast in US dollar terms downwardly revised due to weaker than expected sales in Q411 as a result of component shortages linked to the floods in Thailand

Software sales: US$2.2bn in 2011 to US$2.5bn in 2012, +16% in US dollar terms.

Forecast in US dollar terms downwardly revised due to analyst modification and macroeconomic factors, but enterprise resource planning (ERP) spending will continue to trend upwards, with stronger demand for technology from the small and medium-sized enterprise (SME) segment.

IT services sales: US$7.3bn in 2011 to US$8.5bn in 2012, +18.0% in US dollar terms. Forecast in US dollar terms downwardly revised due to analyst modification and macroeconomic factors, but a number of large projects are expected from the government and from other key verticals.

Risk/Reward Ratings: Indias score is 42.6 out of 100.0. India ranks ninth in our latest Asia RRR table, ahead of Thailand and Vietnam but still behind China. The country achieved a relatively high IT Market score of 52.5, reflecting the potential returns, but its overall rating was lowered by a Country Structure score of just 15, the lowest in the region. Key Trends & Developments.

In 2012 there are expected to be strong growth opportunities in the next 200-400 smaller cities in India, where vendors are expanding their retail and distribution presence. Around 45% of new PCs sold in the Indian market are now shipping outside the top 75 cities. The governments policy of providing tax breaks and subsidies for hardware manufacturers should help keep prices down and support growth.

Despite an overall low level of government IT/software spending, government programmes, at both state and federal level, are likely to become an increasingly important source of IT contracts over the next few years. At the federal level, programmes such as the five-year e-governance initiative, and smart ID project, will generate more IT investment. Meanwhile, education looms large in procurements from state governments such as Tamil Nadu.

The enterprise segment could receive a lift with companies in key IT verticals such as telecoms, pharma, retail and banking indicating their intention to increase spending. The enterprise trend towards mobility is one key driver, as is the interest in cloud computing. While spending is expected to increase, the economic slowdown has encouraged a greater focus on RoI, meaning growing demand for virtualisation of server and storage solutions.

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