Gartner Ups IT Spending Growth Forecast To 4.2%

2012 was a rather moderate year for the Indian IT industry. Overall, the demand remained subdued, decision-making delayed and pricing pressured. The industry, whose performance is directly linked with the global economic scenario, was clouded by uncertainty due to issues emanating from various parts of the world. The resultant insecurity had also added a big question on IT budgets for 2013.

The outlook worsened towards the end of the year, with unfavourable news flows from Syntel, Infosys, Cognizant and Hexaware among others. However, the global macroeconomic outlook seems to be better for 2013 than what was seen in 2012. We have seen 3 electoral events that have been perceived positively. Barack Obama’s tenure reprise in the US, Shinzo Abe’s election as Japan’s Prime Minister and China’s newly elected Xi Jinping have been welcomed by the markets. Housing data in the US, monetary policy in the US, Europe and Asia and manufacturing data from across the world have all been showing improvement. Moreover, the US has averted the fiscal cliff for a further two months. All of these factors have brought some certainty to a highly uncertain environment.

Global technology research and advisory firm Gartner recently reported that it expects the worldwide IT spending to reach USD 3.7 trillion in 2013 as compared to USD 3.6 trillion in 2012, marking a growth of 4.2%. This is an upward revision from the earlier forecast of 3.8%, and is also much higher than the overall IT spending growth of 1.2% in 2012. “Uncertainties surrounding prospects for an upturn in global economic growth are the major retardants to IT growth. However, much of this uncertainty is nearing resolution, and as it does, we look for accelerated growth in 2013 as compared to 2012”, said Richard Gordon, Managing Vice President, Gartner. Considering that Indian IT companies gain 70% of their revenues from exports, the global economic health directly affects the sector.

In H1CY12, midcap IT companies outperformed the IT index and the broader indices by a long mile. While the BSE IT index rose by 2.70%, midcap IT stocks rose by an average of 49.79%. The outlook for the sector saw continuous deterioration through the year. Midcaps managed to have a relatively better outlook because of specialisation in verticals, service offerings, pricing flexibility and newer growth models.

Now that the overall outlook seems to be improving, all companies in the sector will see the positive effects. This will additionally benefit the companies that we have been bullish on due to their ability to adjust and find new avenues for growth. To read more on the outlook for the IT sector in 2013, keep watching this space.