Weak demand, a concern for IT sector – Can impact the Indian GDP

IT sector contributes to 12% of GDP and it has good growth in India

However, the second half of this fiscal year has a weak demand. This may put some pressure on IT sector in the near, considering their higher current valuations (The process of determining the current worth of a company.)

TCS, Infosys, Wipro, HCL Technologies and Tech Mahindra — along with some of their mid-tier counterparts such as Hexaware Technologies, Infotech Enterprises, KPIT Technologies, Mindtree and Persistent Systems has earned healthy returns in 2013.


Source: Economic Times

A gradual renewal in the outsourcing demand in the US and the European market helped Indian IT players to resume on the growth path.

A sharp fall in the rupee against the major currencies during the first half of the fiscal further boosted the top line growth and operating margins.

However, the December and the March quarters are traditionally weak for IT companies due to the festival season and the financial year for many of the client firms to ascertain IT budgets for the next year. IT players naturally report a sequential volume growth of 1.5-3% during this period, compared with more than 3% increase in the first two quarters.

As seen in the December quarter, the rupee has more or less stabilized on an average. Some of the currency market observers have predicted this trend to continue in the remainder of the fiscal.  If that happens, India IT players will not be able to enjoy higher top lines (sales), unless a major depreciation in the rupee takes place. Both these factors are likely to curb the pace of growth in the later of year 2014, which may impact valuations in the near term considering the facts that valuations have risen at a faster pace in recent months.

For more info please check out Economic Times Dec 31st 2013


Go Rural!!

Many of the Indian companies that are in various sectors such as automobiles, banking, consumer goods and food processing have – “Go Rural” as primary strategy. Its time, these companies have realized that there is a great scope of market growth in the suburbans.

Rural India

Some facts:

  • Rural India is 7800 small towns and 6.4 lakh villages with 75% of purchasing power.
  • Rural India contributes 55 per cent of the manufacturing GDP
  • Rural factories account for 70 per cent of all new manufacturing jobs
  • Rural consumption per person has increased by 19 per cent yearly between 2009 and 2012; two percentage points higher than its urban peers.

Accenture research reveals that making real profits in India’s rural markets is possible, even in the short term. The key: Companies must build and maintain efficient sales and distribution networks tailored to rural India’s unique characteristics.

Amul brand is a classic example with its presence of 4000 villages that has less than 5000 in population.

Mahindra and Mahindra is one of the company has been growing its market in financial business and has its presence in 2 lakh villages.

Also with rural consumers increasing their interest for better products and high-standard services, FMCG companies like Dabur and HUL have increased their efforts in rural sectors.

Impact of Recession in India


There are 3 companies that did very well in US, while others went down, in spite of recession during 2008 melt down. Walmart, Dunkin, Best Buy. Whatever their strategy is, it is evident that they could sail through and still make good profits because of their focus, and anchoring to their values. Their technology and innovation has helped them.

Now that India is going through the similar phase, the companies should focus on certain things:

  • Consumerization:
    • Evolving an enterprise technology from consumer products to professional areas. Ex: Smart phone that is a consumer product can be innovated, specialized to Doctors, military etc.
    • Axis bank launched services for elderly, it is more than just opening accounts for them, but it is also paying bills for them, managing emergency services at hospitals.

The four sectors that majorly hit as of now :

  • Automobile: Cars being luxury products, they are hit first.
  • This has impact on loans, credit cards, thus Financial institutes.
  • Holiday sector
  • Consumer durables


  •  Rural India is still not much impacted by recession, as there are no conversations about job loss yet. Rural India mainly depends on monsoon and the impact of bad market condition is relatively low. A good monsoon means good purchasing power. As major part of GDP is still based on rural India, it is still not worst and we have time to cope up soon.
  • No recession holds more than 11 months as per the statistics of past 10 recessions in the world. Putting aside the logic behind, how is it, we have hope that it is getting over soon.