IT vendors in India target sharp growth in software sales

August 11, 2008 (IDG News Service) Total software sales by vendors based in India are expected to increase to between $9.5 billion and $12 billion by 2015, up from $1.4 billion in the fiscal year that ended March 31, according to a study released today by the country's largest IT trade group.

India's IT industry currently draws most of its revenue from services, with companies such as Tata Consultancy Services, Infosys Technologies and Wipro leading the pack. But the National Association of Software and Service Companies, or Nasscom, said in the new study that momentum is picking up for product firms in India.

Of the 371 software vendors set up in India since 2001, two-thirds were formed in the past three years, Nasscom said. The group added that about 100 companies began operations last year alone.

Indian software vendors have also emerged as acquisition targets for multinational vendors. For example, Oracle Corp. in 2005 acquired a majority stake in i-Flex Solutions Ltd., a Mumbai-based developer of financial applications that now is changing its name to Oracle Financial Services Ltd. And EMC Corp. announced in February 2007 that it was buying Valyd Software Ltd., a vendor of enterprise data security software in Hyderabad.

Despite such deals, venture capital funding is what's really supporting the growth of the Indian software industry, according to the new study, which was conducted for Nasscom by Bangalore-based Zinnov Management Consulting Pvt. Venture capital funds invested in the software products sector grew from $76 million in 2005 to $156 million last year, Nasscom said.

About $80 billion in private equity and venture funding, from both international and domestic sources, is expected to be invested in India over the next four to five years, said Sudhir Sethi, chairman and managing director of IDG Ventures India, which has offices in Bangalore and Mumbai. About $20 billion of that money is likely to be invested in hardware and software companies, Sethi added.

So-called angel funds and early-stage venture capitalists are more interested in investing in Indian start-ups than they were a year ago, said Sanjay Anandaram, co-founder of the JumpStartUp venture fund in Bangalore.

Inadequate levels of such funding had been a major problem for Indian software vendors in the past, Anandaram said. The companies that are of most interest to venture capitalists, he added, are those with business plans focused initially on the Indian market.

Reprinted with permission from

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