Information Technology - Strategic and Technology trends for the next cycle - Prabhudas Lilladher

We are rolling our model forward to FY16. As we foray into CY14, the commentaries from the managements seem to be more assertive and confident on the demand environment. We see some early signs of pick-up in discretionary spends corroborated by management's commentary. We believe the strategic initiatives by the companies would help them improve momentum to 15%+ YoY growth in FY15. The strength of demand will be unfolded over the course of the year.

- Top 10 strategic initiatives that would continue to remain in focus: Performance of Indian IT companies has been very divergent in the last five years. We tried to identify key strategic initiatives that will continue to drive the success of Indian IT: 1) Focus on value proposition and competitive positioning: IT companies need to strengthen their niche rather than imitating successful models of others 2) Pricing Strategy: Clients are becoming progressively thoughtful about IT budgets. Vendors need to layout their strategies effectively. 3) New market penetration and M&A: Vendors need to be diligent to build their M&A strategy to penetrate into new markets rather than organic growth. 4) New product & Service offerings and process maturity: Technology (SMAC, Internet of Things, CYOD/BYOD) is changing fast, organizations need to be AGILE to adapt to the change and work towards process maturity. 5) Global Delivery Model and Location Strategy: As economies struggle with unemployment, clients are weighing near-shore options. 6) Change and Transition management: Attrition is one of the bitter truths; vendors have to work towards multi-tier organization for seamless transition. 7) Sales effectiveness: Winning new logos are becoming incrementally challenging; hence, client mining (wallet share) will continue to remain the ultimate aim of vendors. 8) Service optimization and business transformation: As industry moves towards maturity, clients look for further process optimization and IT partners who can understand their business needs more effectively. 9) Domain strength: Clients are looking for solution providers who understand their business needs. Vendors need to have strong domain understanding to present their transformation strategy. 10) Risk management system: As buyers gain more experience, they continue to push the envelope in terms of scope, complexity of work outsourced, number and diversity of service providers utilized, geographical scope and mix of service delivery models. Hence, vendors need to have a strong risk management system in place to adequately price the deal for the risks they are taking.

- Top 10 technology trends that would remain the focal point of decision making: We looked at the current technology trends that would determine growth opportunities for Indian IT: 1) Remote Infrastructure Management/Managed Services 2) Hybrid Cloud and IT as a Service Broker 3) Total IT Outsourcing (Integrated deals) 4) Mobile Platforms and Applications 5) Big Data Platforms and Business Intelligence/Analytics Platforms 6) The Internet of things 7) Platform BPO/Application Platform 8) Increased focus on Security 9) Collaboration and Social 10) Traditional and maturing models.

- Retain "BUY" on Infosys, Wipro, Tech Mahindra, MindTree, NIIT Tech & Persistent and upgrade Geometric to "Accumulate": Indian IT vendors continue to invent and reinvent themselves to identify the next growth drivers. We expect an agile strategic approach and adoption of new technological trend to drive mid-to-high-teen growth in FY15-16. We retain our preference for Wipro Infosys and Tech Mahindra among Tier-1 and MindTree, NIIT Tech, and Persistent in Tier-2.

Source : Equity Bulls

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