NASSCOM : India Software Products Market At Inflection Point
Tuesday, August 12, 2008
India’s revenue from software products is forecast to rise to between US$9.5 billion to $12 billion by 2015, up from $1.4 billion for the most recent fiscal year that ended March 31, according to a study released Monday by the National Association of Software and Service Companies (Nasscom)…..A number of Indian companies, particularly start-ups, are now focused on products or creating intellectual property for markets such as mobile communications, the financial sector and other enterprise applications. Indian software companies have also emerged as acquisition targets for multinational companies. For example, Oracle acquired a majority stake in an Indian financial software company, i-flex solutions, in 2005. EMC announced in Feb. 2007 that it would acquire Valyd Software, an enterprise data security vendor in Hyderabad…..Venture capital funding is supporting the growth of the software industry, according to the study, conducted by management consulting firm Zinnov, which was commissioned by Nasscom. About $80 billion in private equity and venture funding, both international and domestic, is expected to be invested in India in next four to five years, said Sudhir Sethi, chairman and managing director of IDG Ventures India. About $20 billion of that money is likely to be invested in hardware and software companies, he added…..Venture capital funds investing in the software products segment have grown from $76 million in 2005 to $156 million in 2007, according to Nasscom.
Key highlights of the report
Recent trends in market activity aided by a maturing ecosystem indicate that Indian software product businesses are now approaching an inflection point in their evolution. The next decade will be a period of disruptive growth for this segment, with the annual revenue aggregate of Indian software product businesses forecast to grow from USD 1.4 billion in FY2008 to USD 9.5 to 12 billion by FY2015.
- Market: over the past two decades, India has emerged as a global hub for product research and development (R&D) activity, especially in the technology industry. Today, there are over 600 multinational companies (MNCs) undertaking product R&D in their subsidiaries in India.
- Accelerating growth: over the past 3 years, the annual revenue aggregate of Indian software product businesses has grown at a CAGR of 44%. Leading Indian software product firms have strengthened their product portfolio through steady investments in organic growth as well as through overseas acquisitions , and have reached credible business scale.
- Broadening industry base: Of the existing 371 software product start-ups since 2001, over two-thirds have been formed in the past three years – of which ~100 companies have started their operations in 2007 alone. As a result, while the top 10 companies still dominate, accounting for 84% of the segment revenues, there are over 200 midsized companies and start-ups that have started generating revenues and are contributing to its growth.
- Incubation support and venture capital (VC) interest: today there are 38 incubation centres spread across the country that are actively focused on assisting technology start-ups with funding and mentorship. Since 2005, total VC investment in India has grown at a CAGR of 42% to reach USD 543 million in 2007. Over the same period, funds invested in the software products segment have grown at a slightly faster CAGR of 43%, from USD 76 million in 2005 to USD 156 million in 2007.
- Growing market: India is forecast to be the world’s fastest growing IT market over the next few years, with its share of the global software market growing threefold by 2015. Increasing IT penetration across small and medium businesses (SMBs) and the government/public sector are likely to be the key drivers of this growth. Estimated SMB share of domestic IT spending is forecast to grow from 38%, currently, to over 50% by 2015.