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Double Digit Growth For Indian IT Will Come Sooner Than You Think, Says JPMorgan’s Ravi Shankar

JPMorgan India sees the Indian IT companies at the cusp of a transition from legacy to digital, and as legacy companies grow smaller, Indian IT could see double-digit growth in the next twelve months.

“All the mid-cap companies are growing in double digits. Hexaware Ltd., Mphasis Ltd., L&T Infotech Ltd., L&T Technology Services Ltd.—all of these are growing between 12 and 15 percent,” Ravi Shankar, managing director of investment banking at JPMorgan India, told BloombergQuint on the sidelines of the India Investor Summit 2018. “All the large-cap companies are growing smaller and that is primarily because the smaller companies don’t have the legacies bearing it down.”

Key Highlights From The Conversation:

Nature Of Deals Between Buyers And Sellers:

  • India is in an early phase of the growth cycle, especially in the digital space.
  • It's more about getting the right business after which, profitability will follow.
  • Investors today are focused on getting their company right rather than the profitability.

Is The Deal-Making Sector’s Growth Plateauing?

  • After 20 years of China's breakneck growth, their e-commerce sector still grows at 35 percent. India has been seeing this for the past three-four years. So, we are far away from any sort of plateauing of growth.
  • Depending on how much funding the company has, they try to play between growth and margin.

Resurgence Of IT?

  • U.S. is in the best phase as far as demand momentum is concerned and clients are not worried about the demand.
  • India is at the cusp of a transition from legacy to digital. The digital business here contributes to almost 30 percent of revenue generated.
  • As the portion of legacy becomes smaller, growth should hit double digits in the next twelve months.

Growth In Time Of Digitization

  • Some companies are doing better than others and they have rolled out the digital game plan better. Taglines have now changed to being a digital player.
  • Companies are spending time in regulatory technology which is helping banks and financial services deal with the regulatory compliance.
  • Everybody will try to find a niche but that can work for mid-cap companies, not their large-cap counterparts. When you have $5-20 billion in revenues, you can't be a niche player.

Small-Cap Or Large-Cap: Who Survives?

  • All the mid-cap companies are growing in double digits.
  • Growth in large cap companies has slowed and that's because the smaller companies didn't have legacies bearing them down.
  • Large caps will soon catch up, now that digital has become a larger portion of their revenue.

Growth Of Large-Cap Companies

  • The demand is not an issue, but the supply is.
  • In digital, when you execute plans unlike earlier legacy businesses, you have to interact more with the clients. This means that you need technical and soft skills.
  • Large-caps are working on getting the right skill set, both technologically and on the soft side, and that will be a key challenge.

Indian Telecom Industry’s Duopoly

  • Consolidation has taken place in all the telecom companies globally.
  • If you look at the European and the U.S markets, there are only three-four players.
  • The Vodafone-Idea deal didn't invest invest as much as Bharti or Jio did in terms of buying spectrum. There's a lot of hope from this deal.
  • The market is large enough to take three players so I think there will be a healthy industry economics improvement once Jio comes to a level it thinks it deserves to park itself in terms of market share.

Balancing Business And Customer Satisfaction

  • In any market, when a new player comes and cuts the prices, the entire strategy is it will hurt the incumbent more than the newcomer.
  • As the scale builds up, it will start hurting itself more as well.
  • There will be a time when this pinch will be more than the increment the market share gets. This is where the inflection point will come.

Watch the full conversation here: