IT Sector Can Broadly Classified into :

IT- Software: These companies help in developing and implementation of different software for their clients worldwide.

ITeS Business process outsourcing (BPO):Major Corporations across the world outsource their backoffice operations to some companies.

IT- Hardware and peripherals: The stuff you can actually see and touch, This would include laptops, desktops, Storage devices, Networking devices, LCD, printers etc. IT- Education: This segment provides training for employment in the other segments. This would include companies providing various certification courses, like Java, Oracle etc.

Market Share

Review of the Indian IT sector

In the last ten years the IT sector in India has grown at an average annual rate of 28%. India accounts for almost 51% of the global sourcing market.
Exports contribute around 75% of the total revenue of the IT sector in India.

 India exports software to 95 countries around the world

82% of the US companies ranked India as their first choice for software outsourcing.
Of the 23 software companies in the world that have achieved the prestigious SEI-CMM Level 5, 15 of them are Indian.

India has state-of-the-art technologies for total solutions: outsource turnkey projects

 IT is a major thrust area for the Government of India Indian service sector contributes a massive 51 per cent to India's GDP.

Excellent investment potential: India ranked third in Asia, just after Japan and China. Exports contribute around 75% of the total revenue of the IT sector in India.

How does Sector Works

SWOT Analysis
Strength: Easy availability of Talent pool and cost advantage:
Indians are considered to have better mathematical skills required for writing software. It is 5 to 8 times cheaper to employ an Indian technologist than one from developed countries.

Process and Quality: All the Indian software companies

take CMM (Capability Maturity Model) certification, which is the benchmark of quality management. Out of

approximately 250 companies reaching supreme level i.e. level 5 of CMM, 60 are from India.

 Supportive government policies:Indian government policies are framed in a way that ensures maximum benefit out of IT outsourcing to India. Unique geographic location : The major consumer of IT products so far has been the US. The time difference between India and US is 12 hours and it offers economy of 24 hours a day by communication equipment.

Weakness :
Poor Infrastructure: Communication network in India is far behind most of the western developed countries and worse than our closest competitor China. Exchange rate A major part of the Sector revenue is earned in Foreign currency but it incurs expenses in Indian rupees. The fluctuating exchange rate brings volatility in operating margins for IT sector. Concentrated market and Anti-outsourcing: United States and United Kingdom have been the dominant market for Indian IT sector.

Opportunity :
Domestic consumption Overseas market accounts for 75% of Indian software sector, mainly from software outsourcing. The demand for IT products within India has been very less, as compared to those by other countries. Hardware Sector lagging behind: India is the leader for Software and ITeS sector. Indian companies thus have to depend on foreign countries for their hardware requirement.

Threats:
Threat of new emerging service economies: Along with India, Israel and Ireland carry most of the benefits for development of IT Sector. Software sector of Korea, Taiwan, Philippine challenges India. Emergence of China as substitute: China has not yet reached Indias revenue rate of USD 12.7 billion/year from Information technology services, Chinas IT and BPO sector is expected to grow 30 percent annually by 2013.

Top 10 IT companies in India

Rank
1 2 3 4 5

Organization
TCS Infosys Wipro HewlettPackard India Cognizant Technology Solutions

Revenue FY11
33,112 crore 25,997 crore 24,899 crore 23,227 crore 21,393 crore

Revenue FY10

Growth

Rs 26,576 crore 25% 21,355 crore 21,949 crore 17,831 crore 15,646 crore 22% 13% 30% 37%

6
7 8

IBM India
HCL Technologies HCL Infosystems

14,132 crore
14,111 crore 12,137 crore

12,388 crore
10,983 crore 11,956 crore

14%
28% 2%

9
10

Ingram Micro India

9,766 crore

7,234 crore
7,024 crore

35%
32%

Redington India 9,274 crore

This is the future outlook for this IT Sector in India?

Global markets have seen a growth of 5% in GDP. IT spend in 2011 is expected to grow nearly 4%. Worldwide IT spending will also benefit from the accelerated recovery in emerging market. According to NASSCOM, India can reach $ 130 Billion in IT revenue by 2015, with CAGR of 14%. With this, it would be contributing to 7% of annual GDP and creating 14.3 million employment opportunities.

 With the government taking active measures to stimulate the growth of IT sector and emergence of BPO and KPO over last few years, India is expected to climb the global value and knowledge chain. In long-term we can expect the Indian IT sector to see good growth. BPO industry will experience high growth but the Software and ITeS segment is expected to see slower growth.
They have to adapt new business models to compete with global players. With increased threat from countries like China, the companies will suffer loss unless they change business models.

 It is very important that while investing in a company, an investor selects a sector, where the long-term future prospects are bright. The IT sector is expected to have good growth in the long run. Also, it is equally important that the company has an excellent financial track record and its long-term future prospects.
*The 10 YEAR X-RAY facilitates analysis of the financial performance of the company considering the five most important parameters. The five most important parameters that one needs to look at are Net Sales Growth Rate, EPS Growth Rate, Book Value Per Share (BVPS) Growth Rate, Return on Invested Capital (ROIC) and Debt to Net Profit Ratio.

 Given below is the MoneyWorks4me assessment for a few IT companies: At MoneyWorks4me we have assigned color codes to the 10 YEAR X-RAY and Future Prospects of the companies, as Green (Very Good), Orange (Somewhat Good) and Red (Not Good).
While investing, one must always invest in a company that operates in a sector with bright long-term prospects. Further, the companys 10 YEAR X-RAY and future prospects should also be Green.

The table above gives you a list of few Indian companies from the IT Sector that you could consider investing in.

Foreign Investment Policy

Government of India is striving to bring greater transparency in policies and procedures to provide an investor friendly platform. A foreign company can start operations in India by registration of its company under the Indian Companies Act 1956. Foreign equity in such Indian companies can be upto 100%. At the time of registration it is necessary to have project details, local partner (if any), structure of the company, its management structure and shareholding pattern. A joint venture entails the advantages of established contracts, financial support and distribution-marketing network of the Indian partner. Approval of foreign investments is through either automatic route or Government approval.

 Government of India facilitates Foreign Direct Investment (FDI) and investment from Non-Resident Indians (NRIs) including Overseas Corporate Bodies (OCBs), predominantly owned by them to complement and supplement domestic investment. Foreign technology induction is encouraged both through FDI and through foreign technology collaboration agreement. Foreign Direct Investment and Foreign technology collaboration agreements can be approved either through the automatic route under powers delegated to the Reserve Bank of India (RBI) or otherwise by the Government.

FDI Limit
100 percent FDI is permitted under automatic route to the ECommerce activities in India. However, a pertinent condition is that, 26 percent of their equity will be spent on welfare activities for the Indian population in five years. Software Technology Parks (STP) have been a major initiative in India to drive in Foreign Direct Investment in the computer software industry. These Software Technology Parks provide highly developed infrastructure and facilities that attract foreign investors. Regulatory measures by the Indian government have also played a positive role in this regard.

 Measures like increased freedom of recruiting and laying-off employees, tax benefits and easing of export producers have contributed to the growth of FDI in this sector. Skilled manpower.