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Q2 2021

www.fitchsolutions.com

India
Inf
Informa
ormation
tion T
Technology
echnology R
Report
eport
Includes 5-year forecasts to 2025

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India Information Technology Report | Q2 2021

Contents
Key View............................................................................................................................................................................................ 4

SWOT .................................................................................................................................................................................................. 6
Information Technology SWOT............................................................................................................................................................................................... 6

Industry Forecast........................................................................................................................................................................... 7

Industry Risk/Reward Index ....................................................................................................................................................12


Post-Pandemic Recovery Prospects Pushes Asia IT RRI Upward, But Downside Risks Abound.................................................................12

Market Overview..........................................................................................................................................................................14

Industry Trends And Developments .....................................................................................................................................24

Competitive Landscape.............................................................................................................................................................29

Regional Overview.......................................................................................................................................................................37

India Demographic Outlook .....................................................................................................................................................43

Information Technology Methodology.................................................................................................................................46

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2021
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Fitch
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This report from Fitch Solutions Country Risk & Industry Research is a product of Fitch Solutions Group Ltd, UK Company registration number 08789939 (‘FSG’). FSG is an
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THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

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India Information Technology Report | Q2 2021

Key View
Key View: We believe that the post-Covid-19 economic recovery in India, coupled with positive fundamentals in its
significantly under-penetrated IT base and large population, will support growth of the IT market in the coming years. In the
Q221 update of our report, we have again revised upward our estimates for 2020 IT market spending owing to stronger than
anticipated sales of hardware and software to support telecommuting and online learning, although this has been partially mitigated
by a drop in incomes, which has weighed on replacement demand. The government remains an active customer of IT services, and
has been pushing new incentives - such as the new production-linked incentive (PLI) to motivate foreign IT vendors to establish
manufacturing and assembly facilities in the country; this will be positive in lowering costs for hardware, and could stimulate uptake
among price-conscious consumers and enterprises.

Economic Recovery, Rising Incomes To Support IT Market Growth


India - IT Forecast Breakdown

e/f = estimate/forecast. Source: Fitch Solutions

Latest Updates And Industry Developments

• We have revised upward our forecasts for IT market growth in 2020 owing to stronger than expected sales of IT hardware,
software, and services in the year. Further, our Country Risk team anticipates real GDP growth to rebound to an upwardly revised
9.5% in FY2021/22 (Apr-Mar; from 6.2% previously). The robust growth outlook will support greater spending on the IT market,
including enterprise digitisation projects and general consumer spend.
• In 2021, spending across all three IT segments (hardware, software, and services) is expected to recover strongly. In the hardware
market, demand will be supported by renewal of PC stock by enterprises after putting off such plans in 2020, as well as sustained
investments from cloud and data centre providers into new data facilities, which will push up server demand. We continue to
highlight that Indian consumers remain very price sensitive, and risks, such as unexpected slowdowns in vaccine development,
could very much delay the recovery in the IT market.
• Towards the long term, we expect growth in all three IT segments, primarily as household incomes rise and companies seek
strategic investments into IT services. The rapid improvement of communications infrastructure over the years and the
associated rapid fall in prices, has also made digital services much cheaper to implement. As India's economy moves up the value
chain, the use of IT solutions will gradually become a necessity. Rising incomes and a transformation of the household income
profile will be positive in supporting growth in the IT segment; this will result in a deepening of the retail PC market, and provide
THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

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India Information Technology Report | Q2 2021

important support to enterprise confidence and investment. We highlight strong opportunities across many industry verticals,
including the burgeoning fintech segment (compliance, software solutions), and the agriculture sector (namely data-driven
solutions to enhance crop yields).
• The business process outsourcing (BPO) segment remains a major source of revenue for Indian companies, and the country is
the pre-eminent BPO hub in the world, given the large presence of a semi-skilled English-speaking workforce. We expect
sustained demand in this segment moving forward, although the rise of cloud-based assistance software solutions and the rapid
development of other BPO hubs in the region could present long-term downside risks to India. However, this segment is
generally less sensitive to macroeconomic and geopolitical headwinds, and may even see stronger demand as a result of the
Covid-19 pandemic.

THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

fitchsolutions.com
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India Information Technology Report | Q2 2021

SWOT
Information Technology SWOT
SWOT Analysis
Strengths • Substantial young addressable market with rising disposable incomes will support demand IT spending
toward the medium-to-long term.
• Rising demand from businesses across all IT segments, with a pronounced acceleration in demand for cloud
services, providing considerable monetisation opportunities.
• The public sector remains one of the IT sector's biggest consumers, given the reinvigorated push for e-
government services and high spending on cloud computing services.
• The market's position as the foremost business process outsourcing centre in the world is supported by the
presence of a large and semi-skilled workforce with high levels of English language proficiency.

Weaknesses • The low levels of business formalisation mean that the penetration of even basic computing services is low,
making it difficult for software and services vendors to penetrate the market.
• Poor intellectual copyright protections, coupled with high piracy rates, make it difficult for software vendors
to monetise their products.
• Despite efforts to modernise government, many processes remain bureaucratic and inefficient.
• Low levels of access infrastructure, including energy and telecommunications, in rural areas makes revenue
deepening efforts by vendors challenging.
• Regulatory environment often fails to catch up to the advancements in the IT sector.

Opportunities • The growing tech start-up ecosystem, which features many companies providing a diverse range of
innovative services, is a key opportunity for IT vendors.
• The government continues to double down on local IT manufacturing incentives, with its overarching 'Make
In India' initiative and its production-linked incentives programmes positive in spurring electronics
production and assembly, potentially lowering costs.
• Government push for data localisation requirements will provide a shot in the arm to domestic data storage
providers.
• Government and enterprises showing an appetite for cloud computing services, including Infrastructure-as-
a-Service and Software-as-a-Service, which has attracted major inward investment from global leading
vendors, creating a virtuous circle.
• Government push for the development of the Internet of Things (IoT) industry will create opportunities for
networking, software and services vendors in India over the medium term.

Threats • The demand for notebooks and desktops continues to be cannibalised by the sale of low-cost smart devices,
namely smartphones. Intense competition between mobile operators has further accelerated this trend.
• Slow build out pace of communications infrastructure could hamper the sale of IT services.
• Rising competition from China and other Asian countries such as Vietnam and the Philippines for global
business process outsourcing market share could create competition for India.
• Revised labelling guidelines from the Bureau of Indian Standards could hurt white box manufacturers.

THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

fitchsolutions.com
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India Information Technology Report | Q2 2021

Industry Forecast
Key View: Following encouraging trade data, we have revised our forecasts for IT spending in India, accounting for the stronger
estimated spend in 2020. Now, spending is forecast to grow by a compound annual growth rate (CAGR) of 6.7% over 2021-2024 to
reach INR3.84rn (USD45.68bn) by the end of our forecast period, with lower growth in US dollar terms owing to an envisaged
weakening in the local currency unit against the greenback. Key drivers for market growth include a sustained government focus in
digitisation, as well as the low penetration of IT services across Indian enterprises, which will provide a substantial opportunity for IT
vendors to deepen their revenues. Low levels of adoption of basic computing applications among both consumers and businesses
in rural areas is also a prime market opportunity, although vendors could struggle to monetise these groups of prospects owing to
the low maturity of access infrastructure in these areas. We highlight that price sensitivity in the mass market remains the key
downside risk to our market view.

2021 Outlook

We have revised our forecasts for spending in India's IT market in 2021, with the recovery scenario expected to be stronger than
previously anticipated. In 2021, India's IT market is expected to grow by 9.8% y-o-y in local currency terms to reach a value of
INR2.97trn (USD38.50bn). This is underpinned by a strong forecast recovery in 2021. A reinvigorated focus on e-government
initiatives as well as a focus on domestic manufacturing and assembly programmes, such as Production-Linked Incentives (PLI)
could also lower prices and motivate higher sales volumes. Average annual growth in the IT market is expected to come in at 7.3%
over the 2021-2024 period.

• The upward revision is also on the back of an upward revision of our expectations for growth in 2020, when the IT market is
expected to grow by 5.0%, compared to our previous forecast of a contraction of 3.9% owing to stronger than expected
spending on IT hardware, software, and services to support telecommuting and online learning amid Covid-19 lockdowns.
Shipments of PCs also appears to have been stronger than expected in the third quarter of 2020 following a significant
deceleration in Q220. While sentiment apparently remains weak, we are optimistic of a strong recovery scenario in 2021.
• Our Country Risk team, at the time of writing, expects the likely availability and distribution of a Covid-19 vaccine in India during
FY2021/22 (Apr-Mar) to accelerate the ongoing post-lockdown normalisation of economic activity in India over the coming
fiscal year. Real GDP growth is now likely to rebound to 9.5% in FY2021/22 (from 6.2% previously). The robust growth outlook
could support greater spending on the IT market, including enterprise digitisation projects and general consumer spend. The
strong rebound would bring the Indian economy to the same size in real terms to FY2019/20 levels.
• In 2021, y-o-y hardware spending growth will be positive (5.8%), but weaker than growth seen in the services (13.5%) and
software (9.5%) segments. This is a result of potentially weaker PC demand given that consumers frontloaded their purchases of
such equipment to support telecommuting. Investments into new data centre projects will also support the outlook for server
demand; among others, hyperscale cloud vendors including Amazon Web Services (AWS) have announced plans to scale up
their presence in India. After putting off their renewal plans in 2020, enterprises could also spend more on buying new
computers and enhancing their existing PC stock.
• Spending on software and services will appreciate markedly, with spending on cloud computing (18.6% growth y-o-y in 2021)
expected to be a bright spot in the Indian IT market. Following slight weakness in 2020 as businesses put off their digitisation
plans, we expect demand to pick up in the coming year as companies demand greater operational resilience and scalability.
However, this would translate to a weaker outlook for traditional services as on-premise systems could be squeezed out by
automation and cannibalised by the shift to the cloud. We also expect a pick up in global demand for business process
outsourcing (BPO) services, of which India is one of the leading global destinations for.

THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

fitchsolutions.com
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India Information Technology Report | Q2 2021

IT Market Growth
(2019-2025)

e/f = Fitch Solutions estimate/forecast. Source: Fitch Solutions

Market Drivers

• The overall penetration of IT services in India remains low, providing substantial growth opportunities. India is a large emerging
market with gradually rising incomes and a growing population, which are ripe, low-hanging fruit for vendors. Adoption of IT
solutions is also low across all industries, even in government services and entities. Our core view is for sustained periods of high
growth rates, and India will outperform many markets in the Asia Pacific region; this will be supported by robust investments from
foreign multinationals and tech majors. Sector performance will strengthen from 2021 as the economy emerges strongly from
recession.
• Growth in private consumption, which will be driven by rising disposable incomes, and expected to make up 59.8% of GDP by
2024, up from a forecast 58.0% of GDP in 2020, will be key for growth in IT market spending. With the active population rising at
a faster rate than the dependent population, annual income growth and the overall savings rate will also rise, supporting IT
market consumption. However, enterprise sentiment could be pushed down due tightening fiscal and monetary conditions in
the long term. This could also lead to subdued spending from consumers, who remain highly sensitive to price.
• The anticipated weakness in the Indian rupee over our forecast period will make imported IT goods less affordable. This, to an
extent, will be offset by India's increasing share of domestic tech hardware production. While production remains skewed
towards lower-value consumer products, such as smartphones, rather than higher-value servers or computers, we are optimistic
of the growth of the domestic assembly industry. The PLI scheme for handset and component manufacturers, which was first
launched in April 2020, has already attracted smartphone vendors including Samsung, and original design manufacturers
including Foxconn, Wistron, and Pegatron. In November 2020, the Cabinet approved plans to extend the PLI scheme for the
manufacture of laptops.
• While local producers, such as Lava and Micromax, have been quick to exploit these more attractive conditions resulting from
the PLI and other top-level government initiatives such as 'Make In India', global players have made faster progress, using their
scale to invest in new facilities and striking supply deals both locally and regionally. The National Electronics Policy has also been
positive in growing the local electronics manufacturing market. Further relaxation of local sourcing rules, which have allowed
single-brand retail companies to limit their sourcing of Indian products to just 10%, provided that 20% of their products are
exported to other countries, will also be positive for the market. Several IT retailers, including Apple, have welcomed the move as
they seek to expand their retail operations in the country; this could present upside risks to our IT spending forecasts. In
September 2020, Apple launched its direct online retail presence in the country.
• While investments from IT vendors remain centred around larger, core cities, there continues to be a focus on smaller cities in
THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

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India Information Technology Report | Q2 2021

India, where the PC penetration is lower than the larger, more formalised cities. This dynamic is reflected in announcements of
major IT vendors to expand/upgrade their retail and distribution networks and gradually shift the main focus away from urban
areas. However, this highlights the fragmented nature of the retail market and the significant urban/rural divide in India.
• Vendors will also be able to gain share from burgeoning IT start-ups in the country. There are several well-established Indian-
based unicorns, such as Paytm, OYO and Ola, which have all been heavily investing into new disruptive technologies, such as
artificial intelligence (AI) and new innovations at the consumer level. The recent ban on Chinese apps carried out by the Indian
government in June 2020 will also support the rise of locally based tech companies; apps, such as Roposo - a substitute for the
banned ByteDance app TikTok, has reported a strong uptake following the ban on Chinese services. The rise in Indian start-ups
is also attributed to unique solutions being offered by these companies in global whitespace opportunities such as the Internet
of Things (IoT), augmented reality, smart hardware, business intelligence and many more.
• Rising investments from foreign players into local data storage capacity is also largely a result of complying with the Personal
Data Protection Bill, which, if passed, will force foreign companies to store data collected on Indian citizens locally. The Reserve
Bank of India has already enacted legislation to force digital payments players to store transaction information in Indian data
storage facilities. The growing data centre market will support demand for servers and IT support services.
• Smart cities and IoT solutions will benefit the IT sector going forward, with local telecoms operators already looking to accelerate
the development of these projects. However, it remains to be seen whether lofty targets set by the government could be
translated into action, given the financial pressures faced by the government. While 5G trials are reportedly ongoing, Indian
telecoms operators are unlikely to commercialise 5G services soon given the raft of pressures they are facing, largely resulting
from disagreements with the regulator over their adjusted gross revenue (AGR)-related licence dues. Nonetheless, 5G, when
launched, could help support the development of new computing paradigms, such as edge computing and cloud solutions,
across different industries, including healthcare and banking.
• The government continues to promote uptake of new technologies, such as IoT and AI, through policies, such as the National
Digital Communications Policy, among others, which we expect to contribute positively to IT spending growth.
• In the hardware segment, we see sustained demand potential coming from the small business segment in India - a group which
has very much lagged in the adoption of even the most basic computing set-ups. India's small and medium-sized
enterprise (SME) market is a multi-billion dollar digital enabling opportunity for IT vendors. India has an estimated 42.5mn SMEs,
with only a small amount of them digitally enabled. The growth will be primarily driven by affordable enterprise grade solutions as
cloud solutions are more widely available and the mobile app ecosystem. Continued migration toward smartphones could,
however, put a squeeze on low-end PC sales.

Purchasing Power And Demographic Trends


Household Income Breakdown (2021-2025)

f = Fitch Solutions forecast. Source: National sources, Fitch Solutions


THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

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India Information Technology Report | Q2 2021

• We believe the transformation in India's household income profile over 2020-2024 will result in a deepening of the retail PC
market and provide important support to enterprise confidence and investment. India is, however, coming from a low base,
trailing China by a wide margin in terms of household incomes, evident in our data (see chart above) that show India to be a very
low-income market. This is also reflected in household PC penetration at around one quarter the level of China.
• The overall medium-term outlook is positive in India, but there are also several drags on market development, which, if
addressed, could see the growth rate trend higher. Regional imbalances and a flawed legal regime for patent protection are a
drag on growth, while measures to encourage the domestic hardware sector have so far had mixed results (although Modi's
'Make In India' initiative and the newly announced PLI has catalysed the handset and tablet industry). Meanwhile, the important
BPO market faces a strong challenge from other markets, including China and the Philippines. The rise of AI across the world
could also wipe out lower-value BPO work toward the long term.

Verticals

• We maintain our forecast that the Indian enterprise IT market will be a regional outperformer over the medium term, and by the
end of 2024, our forecasts envisage the market to be over double the size of the size of the market seen in 2011. As a result of
the upbeat and bullish sentiment, many Indian private and public sector organisations are investing in upgrading their IT
infrastructure or adopting solutions for the first time. The enterprise market offers vendors a wide variety of opportunities, but in
the short term it will be traditional overweight IT spending verticals including financial services, telecoms and the public sector
that will account for the majority of demand.
• A key vertical over the medium term will be the Indian insurance and financial services sector, which is expected to be a major
source of growth for vendors, with investment in internal IT infrastructure, including hardware and software and manpower and
external IT services and telecommunications, all forecast to be growth areas. This reflects global patterns of enterprise IT
spending, with the vertical overweight in IT markets globally due to the level of demand for complex solutions. The rapid growth
of the financial technology (fintech) sector, and the potential for IT solutions to tackle India's massive underbanked population
could also be a prime opportunity for IT vendors to provide solutions such as anti-money laundering (AML) and know-your-
customer (KYC) systems.
• The public sector will also offer growth opportunities, for instance via the government's new e-government initiatives, including
Digital India, which could be major drivers of public sector spending in the medium term. This would add to the wave of
computer procurements by local governments, for instance, major education procurements from state governments.
• The emerging niche technology solutions are primarily targeted towards ad-tech, edu-tech, health-tech, agri-tech and several
others. This has attracted major investment directly in start-ups and via start-up accelerators from global players including SAP
and Microsoft.

ENTERPRISE TRENDS - GVA BY VERTICAL (INDIA 2019-2025)


Indicator 2019e 2020e 2021f 2022f 2023f 2024f 2025f

Agriculture nominal GVA, % total GVA 17.06 16.92 16.61 16.33 16.07 15.82 15.61

Mining nominal GVA, % total GVA 2.16 2.13 2.09 2.07 2.05 2.04 2.03

Manufacturing nominal GVA, % total GVA 16.72 16.43 16.61 16.62 16.62 16.59 16.58

Construction nominal GVA, % total GVA 7.39 7.95 7.85 7.87 7.89 7.90 7.91

Finance nominal GVA, % total GVA 5.34 4.36 4.32 4.19 4.07 3.97 3.88

Real estate nominal GVA, % total GVA 17.34 16.82 17.30 17.60 17.87 18.13 18.35

Other services nominal GVA, % total GVA 7.91 7.35 7.32 7.23 7.14 7.06 6.99

Utilities nominal GVA, % total GVA 2.94 3.28 3.34 3.42 3.50 3.57 3.63

Trade, accommodation & food service nominal GVA, % total GVA 13.61 14.93 14.84 14.87 14.92 14.96 14.99

Transport & communications nominal GVA, % total GVA 8.11 8.86 8.92 9.07 9.22 9.35 9.48

THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

fitchsolutions.com
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India Information Technology Report | Q2 2021

Indicator 2019e 2020e 2021f 2022f 2023f 2024f 2025f

Public administration, education and human health nominal GVA, % total GVA 1.41 0.98 0.80 0.72 0.65 0.60 0.55
e/f = Fitch Solutions estimate/forecast. Source: Central Statistics Organisation, Fitch Solutions

• Reinvigorated investments by cloud computing majors into India will also benefit the segment. Microsoft Azure (Mumbai, Pune,
Chennai), Amazon Web Services (Mumbai), Google Cloud (Mumbai), Alibaba Cloud (Mumbai) and Tencent Cloud (Mumbai)
are among the large cloud vendors with a presence in India. Meanwhile, the government is a leading actor in driving awareness
and adoption of cloud services, and new cloud computing offerings are expected to fuel further demand from local end-users to
use this technology.
• The cloud opportunity, however, will emerge only gradually given the relatively less formalised state of many segments of the
economy. Many Indian enterprises have the opportunity to leapfrog on-premise deployments, but with the adoption of basic PCs
and computing devices at an extremely low level, the broader digitalisation potential will remain limited. The development of
digital infrastructure has also lagged, with broadband and 4G penetration trailing that of other large markets, like China, by a
significant margin. On the upside, the government is a proactive user and customer of cloud services. The Ministry of Electronics
and Information Technology introduced guidelines in October 2019 to assist government departments in their cloud services
procurement process.
• The IT-enabled service sector remains critical to overall enterprise spending growth. According to government figures, India's
BPO industry continues to grow at a double-digit rate per annum, generating continued opportunities for vendors of IT products
and services. The fastest growing software and services areas are therefore expected to be call centres and BPO operations, with
80% of domestic industry revenue coming from exports. However, a NASSCOM report identified a strong challenge to India's
BPO dominance from other countries, including China.

IT INDUSTRY - HISTORICAL DATA AND FORECASTS (INDIA 2019-2025)


Indicator 2019 2020e 2021f 2022f 2023f 2024f 2025f

IT market value, INRmn 2,572,865.0 2,699,870.8 2,964,141.3 3,200,104.6 3,428,342.9 3,636,528.6 3,836,829.1

IT market value, % of GDP 1.3 1.4 1.4 1.3 1.3 1.3 1.2

Computer hardware sales, INRmn 1,090,813.1 1,085,863.8 1,148,744.8 1,197,194.1 1,234,214.5 1,254,208.3 1,272,438.2

Personal computer sales, INRmn 785,514.7 784,729.2 834,167.1 871,704.6 900,470.9 913,077.5 924,947.5

Software sales, INRmn 415,025.8 412,535.6 451,726.5 486,509.5 521,538.2 557,524.3 595,435.9

Services sales, INRmn 1,067,026.1 1,201,471.3 1,363,670.0 1,516,401.0 1,672,590.3 1,824,796.0 1,968,954.9
e/f = estimate/forecast. Source: Fitch Solutions

THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

fitchsolutions.com
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India Information Technology Report | Q2 2021

Industry Risk/Reward Index


Post-Pandemic Recovery Prospects Pushes Asia IT RRI Upward, But
Downside Risks Abound
Key View:

• The overall score of the Asia IT RRI has improved to 62.7 out of 100.
• The post-pandemic normalisation of economic activity will unlock pent-up IT demand, which itself will be accelerated by public
sector and enterprise IT investments.
• Risks remain skewed to the downside following the possibility of a third wave of infections in several markets, as well as the slow
pace of inoculation across the region.

In its Q221 update, the Asia IT Risk/Reward Index (RRI) improved by 1.7 points to reach 62.7 out of a potential 100. Notably, the
Industry Rewards sub-score of the RRI showed the greatest improvement; as we shift our five-year forecast period to 2021-2025,
the relatively bearish 2020 growth figures - which have been caused by weaker of enterprise project deployments and deferment of
non-essential IT spending - are no longer reflected in our IT market assessments. Japan retains the leading position in the Asia
region, followed by South Korea and Singapore. Despite a slight upward revision to its score, Bangladesh remains near the bottom of
the table and maintains its status as one of the least attractive Asian markets out of the 15 surveyed.

India Slides, Singapore Gains Ground


Selected Asia IT RRI Scores, Q2 2021

Note: Scores out of 100, with higher scores indicating lower risks. Source: Fitch Solutions

As pent-up demand begins to emerge in 2021 with the effects of the pandemic already largely known, our core scenario is for IT
spending to rebound across the board. Companies - having largely adjusted to the new normal - are expected to ramp up capex on
digitalisation projects, while the public sector will be keen to invest more into modernising government services after facing a
challenging 2020. The growth of newer technologies - such as IoT and 5G - across several markets in Asia will also necessitate
higher levels of spending into core networks, backhaul, data storage, and support services.

THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

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India Information Technology Report | Q2 2021

Singapore, which ranks second on our league table, is a regional bright spot. Its relatively effective public health response coupled
with fiscal stimulus measures has largely limited domestic economic fallout, with community transmissions of the virus at very low
levels. Singapore's software and services segment will further benefit in 2021 from the acceleration of the cloud computing, digital
transformation and digitisation trends that occurred across the region as a result of the pandemic. The city-state is a
regional IT hub for South East Asia, and has also enjoyed increased investments from other regional tech players in light of the
worsening political outlook in Hong Kong. Companies that have announced expansion plans in Singapore in 2020 include Chinese
tech giants Alibaba, Tencent and Bytedance, which could set up the market for further long-term growth.

India fell to 13th place in our latest update despite a 1.4-point improvement to its overall score, which now stands at 56.7. Policy
risks remain pertinent in India, and the marked shift towards protectionism in areas including IT hardware manufacturing could
hinder the competitiveness of the sector in the future, despite being positive in the short run in attracting foreign
investment. Structural issues, such as slow rollouts of basic infrastructure in rural areas, will also make it difficult for consumers
and businesses there to adopt even basic IT hardware and software. Nonetheless, we expect India’s IT sector to continue its
recovery into 2021 following encouraging sales and trade data in the latter half of 2020.

We flag that risks to our forecasts are skewed to the downside. While vaccines have been approved and inoculation of the
population is already underway in some areas, the emergence of new mutant strains of the virus, as well as storage and
logistics challenges for the vaccines, which are more pertinent to emerging markets, have come to light. In major Asian markets
such as Japan and South Korea, risks of a third wave of infections are materialising. The implications of a new outbreak will be more
significant for the former market, which could be forced to further downscale the size of the upcoming Olympic Games. The sports
event was anticipated to be accretive to the country in terms of higher hosting and integration demand to support operations, and
from world media covering the event.

ASIA PACIFIC IT RISK/REWARD INDEX, Q2 2021


Industry Rewards Country Rewards Industry Risks Country Risks IT Score Q-o-Q Change Rank

Japan 83.3 100.0 80.0 71.7 84.9 0.7 1

Singapore 71.7 100.0 70.0 80.1 79.9 1.5 2

South Korea 75.0 90.0 75.0 75.4 78.7 1.9 3

Australia 75.0 95.0 57.5 73.0 77.5 1.0 4

Taiwan 73.3 80.0 35.0 79.3 71.4 4.2 5

Hong Kong 56.7 100.0 45.0 83.9 70.8 0.8 6

Malaysia 70.0 60.0 37.5 74.3 64.4 2.9 7

China 83.3 40.0 45.0 60.8 64.1 0.0 8

Indonesia 70.0 35.0 42.5 56.0 55.6 1.1 9

Thailand 65.0 30.0 35.0 71.3 54.0 2.4 10

Philippines 65.0 35.0 42.5 57.7 53.6 1.2 11

Vietnam 68.3 20.0 35.0 55.7 50.2 2.2 12

India 66.7 15.0 45.0 56.7 49.6 1.4 13

Bangladesh 68.3 15.0 35.0 41.3 46.4 1.6 14

Sri Lanka 48.3 15.0 37.5 47.4 38.7 1.8 15

Average 69.3 55.3 47.8 65.6 62.7 1.7

Note: Scores out of 100, with 100 the best. Scores are weighted as follows: 'Rewards' at 70%, of which Industry Rewards 65% and Country Rewards 35%; 'Risks' at 30%, of which
Industry Risks 40% and Country Risks 60%. The 'Rewards' score evaluates the size and growth potential of the IT market in any given state and broader economic/socio-
demographic characteristics that affect the industry's development. The 'Risks' score evaluates industry-specific dangers and those emanating from the state's political/
economic profile, based on Fitch Solutions' proprietary Country Risk Indices. na = not available. Source: Fitch Solutions

THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

fitchsolutions.com
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India Information Technology Report | Q2 2021

Market Overview
Recent Developments

• IT spending in India is estimated to have shrunk slightly in 2020 in local currency terms, following expansions in 2018 and 2019.
The pandemic has had a disproportionate impact on lower-income households, which form a disproportionate large portion of
all households in India. Lockdowns enacted in the second quarter of 2020 also heavily impacted market spending as e-
commerce channels in many parts of the country were not formally developed, and many consumers were unable to access
physical retail stores to purchase equipment. However, we believe that spending recovered in the third fourth quarters as
widespread remote work and study caused a recovery in demand for notebooks and tablets.
• The cloud and services segment is estimated to have grown in 2020 as the adoption of new digital paradigms and remote
collaboration tools by businesses props up the IT market. The public sector, together with government digitisation initiatives
have also appeared to have stayed its course in 2020, and this has propped up demand for cloud, managed services and
software. This segment has also been driven by increased investments from hyperscale cloud vendors into creating more
availability zones in the country. The small- and medium-sized enterprise (SME) opportunity stands out for the services market,
with the favourable cost profile and increasing supply of cloud and IT services in India deepening the market for enterprise
applications and other services to this previously underpenetrated area.

Hardware

The computer hardware market in India shrunk only slightly in 2020. The Covid-19 pandemic has created a disproportionate effect
on hardware spending in India. On the one hand, low-income households, which saw their incomes shrink significantly as a result of
job losses have likely put off the purchase of their first PCs and laptops, as well as hold off upgrades of existing devices. Poorer
households, which often live in areas where last-mile delivery networks are less adequate and established, were also unable to
purchase devices from online channels. On the other hand, middle-to-upper income households, which have appeared to have
been more economically insulated from the pandemic and have more disposable incomes given the lesser ability to spend on
holidays and hospitality, have spent more heavily on these devices as they invest in remote-working and learning.

Sustained investments by the three principal mobile operators into their 4G LTE networks have also underpinned the proliferation
of low-cost smartphones, which have cannibalised demand for these product categories, especially among poorer households.
However, we maintain that India's huge population and potential for deepening in the hardware segment makes it is one of the
more attractive global hardware opportunities over the medium term. Price sensitivity, nonetheless, remains a key sticking point in
the devices market.

THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

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India Information Technology Report | Q2 2021

Hardware Market
(2019-2025)

f = Fitch Solutions forecast. Source: Fitch Solutions

PC Market

• The slight decline in the PC market in 2020 has been a result of weaker income growth affecting poorer households, offset by
higher spend by more affluent household groups on remote working and learning, as India was thrown into a lockdown in Q2
2020 to prevent the spread of the virus. Spending was also supported by businesses to support remote working. Overall, the
Indian PC market is attractive, owing to low levels of device penetration, falling prices and increased consumer spending
power. Based on the latest available data from the National Sample Survey suggests that only 8% of all households in India with
at least one member aged five to 24 has a PC and an internet connection.
• There has also been slight upsides to PC growth as a result of the end of extended Windows 7 support in January 2020, although
some consumers and businesses have also put off these upgrades due to the pandemic impacting incomes and business
revenues, and have continued to use the legacy operating system. Indeed, data from Statcounter suggests that penetration of
Windows 7 PCs only dipped by seven percentage points over the December 2019 to December 2020 period. Windows 7 was still
installed on roughly 27% of all PCs in use in India.
• PC demand could also increasingly be cannibalised in favour of mobile-centric devices, namely smartphones, which could put
PC sales on a permanently lower growth trajectory. This is a clear downside risk for poorer emerging markets like India.
• As well as differences in device trends, there is also a regional dimension to the hardware market in India. An increasing
contribution to growth is expected from smaller cities in India, where vendors are expanding their retail and distribution
presence. Around 45% of new PCs sold in the Indian market are now shipping outside the top 75 cities, and tier-III and tier-IV
cities will be an important growth driver over the next five years. The pandemic, however, has slowed vendor penetration into
these poorer areas.
• The education and government sectors, among others, still have significant demand for desktops, while growing PC penetration
in lower-tier cities should help to maintain demand for some time to come. The education sector represents a significant
potential segment of PC demand. It has been estimated that of India's 1.3mn schools, only around 14% have access to
ICT (information computer technology), defined as having at least one PC for each school.
• Tapping into this low penetration translates to a huge opportunity for PC vendors, even relative to other emerging markets in
Asia Pacific (APAC). The disparity between PC penetration and mobile phone penetration is also striking, and represents a clear
opportunity for vendors to deepen their sales. India's large youth population will also boost PC and IT usage as living standards
rise and income profiles improve.
• Vendors are looking at government schemes in order to boost their sales. Initiatives such as the Digital India programme will fuel
long-term demand for IT hardware. The roadmap for a private government cloud also bodes well for vendors as the government
THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

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India Information Technology Report | Q2 2021

looks set to continue heavy investment in hardware and services in order to boost its efficiency and effectiveness in reaching out
to more Indian citizens.
• A key risk to the segment is the relatively low level of disposable incomes and the high prevalence of inequality across the
country. Vendors, while making some headway into more rural and disenfranchised parts of the country, remained focus on
expanding their efforts in growing sales in urban and richer regions. The historical lack of action in the distribution of PCs to
economically disadvantaged segments of the population remains a key impediment to market growth.

India Desktop OS Market Shares (%)


December 2020

Source: Statcounter

• Data from the quarter ending December 2020 suggests that Dell was the largest PC vendor in India, with shipments growing
57.1% y-o-y in the fourth quarter of 2020. This is based off of data released by IDC, and puts the US-based computer vendor at
32.7% PC market share in Q420. It was followed by HP, which grew its sales by 8.8% y-o-y and maintained a market share of
26.7%. The two vendors were ahead of Lenovo, Acer, and Asus, which had shares of 18.4%, 8.5%, and 6.4% respectively in the
fourth quarter of 2020. Total shipments in the quarter were estimated at 2.9mn units.
• Data from Statcounter suggests low penetration of Apple's Mac computing products, which are generally more premium and
command higher prices. Despite the release of a refreshed line-up of desktops and laptops which feature Apple's in-house
designed M1 system-on-a-chip, it appears that Apple's PC market share has not appreciated considerably.
• As the Indian computer hardware market has grown, vendors have increasingly sought to produce 'Made For India' models.
These are now becoming a growing focus for main vendors such as HCL and HP. Typical features suited for Indian conditions
include the ability to be operated on a 2V battery or to withstand extreme weather and dust. More recently, there has also been
fast-paced development in the low-priced end of the tablet market as manufacturers look to produce devices with broad-based
appeal among poorer consumers.

THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

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India Information Technology Report | Q2 2021

PC Volume Forecast
(2019-2025)

e/f = Fitch Solutions estimate/forecast. Source: Fitch Solutions

Printer, Copier And Multifunctional Peripherals

• Printer and copier demand growth underperformed in 2020. This has resulted from the shuttering of many workplaces due to
the pandemic, as well as a transition toward remote working and digital-based software, which reduces the need for paper. There
was also a drag from the greater longevity of hardware and adoption of paperless processes. Some vendors recorded
improvements in personal sales as users purchased printers for home use, although enterprise spending shrunk significantly.
• The slight slowdown in PC sales as well as the ongoing shift toward smartphone-based apps and websites rather than paper-
based processes has contributed to the decline.

Printer & Copier Spending Forecast


(2018-2024)

e/f = Fitch Solutions estimate/forecast. Source: Fitch Solutions


THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

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India Information Technology Report | Q2 2021

Software & IT Services

Software and services spending was a bright spot for India in 2020. The Covid-19 pandemic has accelerated the push by many
companies to digitise their existing operations. While the economy weakened significantly through 2020, we estimate that
spending on IT services remained considerably strong, despite slight weakness observed in the earlier part of the year when
businesses were gauging the impact of the pandemic on their business operations, and have held back on their IT investments. The
business process outsourcing (BPO) segment had took a considerable hit in the early stages of the government lockdown, as many
could not return to their place of work owing to a restriction on travel and public transit shutdowns. However, we estimate that the
segment has since recovered strongly as businesses around the world outsourced more operations to India, which remains the
premier global BPO hub. There was also development of the cloud ecosystem as foreign companies invested into local data centre
capacity amidst new data localisation and protection laws, as well as ongoing investments from businesses in digitisation. These
investments will be a key foundation to move the Indian IT market toward a higher level of development in the long term.

Software

• In 2020, the pandemic posed challenges for traditional areas of the software market when business confidence plunged, and
non-essential investments were curtailed as businesses awaited more news and certainty about the pandemic. Large on-
premises projects were delayed as efforts were focused on priority areas for IT departments in the private and public sector,
namely those that ensured business continuity during the pandemic. This was an upside for software solutions that enable
remote work, including collaboration, communication, virtualisation and cybersecurity solutions, as well as those that
underpinned the scaling up of socially distanced supply chains and internal process automation.
• One pronounced trend was the acceleration in cloud software adoption, with firms seeking scalable solutions given the urgency
of rollout required to ensure productivity could be maintained when employees began working remotely. Another factor was
greater ease of maintenance and management for cloud applications versus the on-premises model, which was an important
factor during lockdown when site access was at times prohibited.
• We consider India's software market to have a bright medium-term outlook, with the underlying demand driver from enterprise
modernisation momentum supplemented by a deepening of the market as lower-cost cloud software services deepen the
market to SMEs. As the economy grows, there should be more demand for solutions that help to improve efficiency.
• The software market grew in 2020, accelerating from the growth levels seen in 2019. The enterprise and government segments
have been preparing for the end of extended Microsoft support for Windows 7 in January 2020. Spending was elevated due to
migration toward Windows 10 OS, as companies sought to ensure access to the latest security patches and feature updates.
• There is, however, some downside from the deepening of the Software-as-a-Service (SaaS) market, as it will cannibalise higher-
value on-premises volume, but this will likely be outweighed by the overall expansion of the enterprise application market in
terms of impact on market value.

THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

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India Information Technology Report | Q2 2021

Software Market
(2019-2025)

e/f = Fitch Solutions estimate/forecast. Source: Fitch Solutions

Enterprise Software

• Companies have invested heavily into remote collaboration software as well as virtual private network (VPN) services to enable
their employees to work remotely effectively. We do expect such demand to taper off in the coming years as vaccinations begin
and the economy returns to some form of normalcy.
• The telecoms, government, manufacturing, and consumer goods and retail markets are key verticals driving demand, with
businesses looking to improve customer service experience, efficiency and decision support. Meanwhile, the business segment
is becoming increasingly important and vendors forecast it may double in size over the next few years.
• The leading sectors for enterprise resource planning (ERP) and enterprise risk management (ERM) applications are
manufacturing, retail banking and financial services, telecoms, IT services/call centres and insurance, as well as state and central
government agencies. As services become increasingly important, particularly in competitive industries such as telecoms, more
companies are adopting customer relationship management (CRM) solutions. Storage and database applications, although still a
relatively small segment, have great growth potential as Indian companies seem to manage increased data flow.
• Investments in the retail segment are another growth area, with the modernisation of retail in India a significant trend as the
government looks to migrate citizens away from unproductive low-value informal retail employment.
• Vendors are also increasingly focused on opportunities in the huge SME sector, where price is an important consideration.
Studies suggest that there are at least 7.5mn SMEs in India. It is estimated that around 60% of Indian SMEs still use paper-based
systems, but an increasing number are now trying to convert to digital.
• The earliest demand came from suppliers in industries, such as auto parts and ancillaries, where smaller firms were obliged to
implement e-commerce systems to synchronise with their larger customers. However, firms in other sectors, such as transport,
now have a greater awareness about the potential benefits of technology utilisation.

Services

• Domestic demand for IT services remains relatively small in India, compared to India's leading global position as an IT services
exporter through firms such as Infosys, Wipro and TCS that focus most of their attention on procuring customers outside their
domestic market. However, this is expected to gradually change with strong demand coming from both the enterprise and
government segments for a range of IT services, including outsourcing, cloud services and most recently Internet of Things (IoT)
applications.
THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

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India Information Technology Report | Q2 2021

• Domestic provision of IT services is still typically built around hardware sales, but the consulting element has been growing.
Enterprises are increasingly looking for external advice in prescribing an IT strategy and identifying vendors.
• One group of segment drivers is related to a paradigm shift in the character of the Indian IT industry, with India gradually moving
up the value chain from low-cost service provider to an integrated higher-value global IT services vendor.

Outsourcing

• India is the preeminent global hub of business process outsourcing (BPO) services. Many multinational companies have focused
on investing into local capacity to lower their costs. However, at the moment, the market is skewed toward lower-value services.
The segment is also facing growing competition from other low-cost and nearshore destinations such as Eastern Europe, China
and South Africa. However, in some verticals, such as auto and manufacturing, Indian companies actually command a relatively
small share of the total available outsourcing market, meaning there is also still scope for growth.
• Potentially tighter restrictions on the issuance of H1-B visas in the US for the tech sector could present a prime opportunity for
India, as US tech companies could outsource even more processes to other markets.
• Traditionally, domestic IT service companies have concentrated on exports. Exports still account for over three quarters of
revenue, but demand is also now growing within the domestic market, including facilities management and even managed
services. Increasingly, local players such as Wipro and TCS are pitching for IT deals from domestic companies, for BPO.
• A key downside risk is evident in the price sensitivity in the domestic market, even among large enterprises and the public sector,
which is contributing to weak demand. As the economy grows and businesses move up the value chain, there should be a
gradual migration of BPO providers toward higher-value and more complex services, as well as higher demand from enterprises
for these sophisticated offerings. India's large pool of semi-skilled labour and relative low-cost advantage create a wealth of
opportunity for multinational companies.

Cloud Computing

• Demand for cloud services is expected to remain robust in India, despite being one of the less developed cloud markets in APAC.
This is given the currently low level of spending on IT in the country, as well as relatively low levels of digitisation. The pandemic
has also had the positive effect of accelerating the transition to the cloud.
• The increased supply of cloud solutions is built on the back of increases in data centre capacity. This was in combination with the
underlying cost rationale, as well as capacity and flexibility improvements offered by cloud services.
• The government is a key customer to many of the local tech majors. The state continues to double down on its digitalisation
plans, namely Digital India, which itself comprises of a multitude of other digital-first initiatives, including MyGov.in, Aadhaar digital
IDs, and e-Cabinet. The central government has also been pursuing the development of a private government cloud
environment available for use by central and state government departments, districts and municipalities to accelerate ICT
service improvements.
• The government's cloud push will ultimately mean multiple private cloud environments, but using the same standards at the
national and state levels and will not require a single service provider or vendor. Central platform standardisation means vendors
can compete for any element of the procurement process and ultimately in the provision of Infrastructure-as-a-Service (IaaS),
Platform-as-a-Service (PaaS) and SaaS.
• While there has also been solid progress in improving supporting infrastructure, including the deployments of more robust fibre
backbones and sustained investment into energy networks, infrastructure remains a key constraint to the further development
of the cloud segment, even toward the short-to-medium term. However, the passing of the National Digital Communications
Policy by the Cabinet in September 2018 could boost the prospects of fibre rollouts toward the medium term.
• Overall, growth in server sales is estimated to have weakened slightly in 2019 owing to lower demand from IT firms, which have
instead opted to migrate to the cloud to host their applications instead of investing in physical infrastructure. However, the long-
term modernisation trend across the industry will likely support the sales of servers over the long term. Sustained investments
from global hyperscale providers into India, including into data centres and colocation facilities, will further underpin this trend.

THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

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Cloud Computing Demand


(2019-2025)

e/f = Fitch Solutions estimate/forecast. Source: Fitch Solutions

• Vendor investments continue to drive the market. Amazon Web Services (AWS) announced plans in November 2020 to
launch a second cloud region in Hyderabad by 2022, providing three alternative availability zones to its main Mumbai region.
This followed on plans in announced in February 2020 to pile over USD1.6bn to construct two data centres in Hyderabad. This
will enable the US tech major to exploit demand for enterprise-class cloud computing services across the Indian sub-continent.
In January 2020, Japan-based communications provider NTT Ltd announced a planned investment of USD1.5bn into building
new data centres in India - it plans to add 1.5mn sq ft of new rack space. Microsoft is already present in India with three data
centres to provide Azure and Office 365 services from local facilities.
• Challenges of the Indian cloud computing environment are captured in the results of the 2020 Cloud Readiness Index. India did
record an improvement in its overall profile, although it ranks 10th out of 14 markets surveyed. India scored relatively poorly in
infrastructure metrics, highlighting the unreliability of its power grid as well as its poor progress in terms of green energy. Tax as
well as legal risks were also highlighted as factors that could affect data centres situated in the country.
• Meanwhile, in terms of business sophistication, the large outsourcing industry, as well as financial services, present upside for
cloud vendors. However, India's cloud potential is held back by concerns that we have highlighted for several years, namely the
poor quality of broadband infrastructure and insufficient international bandwidth.
• India is a regional laggard in terms of broadband infrastructure investment and we do not expect India to close the gap to its
peers, at least in the medium term. This network infrastructure deficit will push up cloud computing costs for vendors and end-
users, and act as a drag on adoption and market value growth.

THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

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India Information Technology Report | Q2 2021

India Cloud Readiness Profile


2020

Source: Asia Cloud Computing Association

SaaS

• The SaaS market in India is the largest sub-segment of the cloud computing market, as is the case globally. With increasing
mainstream awareness of the cloud computing models, more Indian businesses are re-evaluating the way they structure their IT
investments.
• The SME cloud market in India is one area in which SaaS models are expected to have a particular impact due to tighter budgets
and the lower level of demand for bespoke software solutions. The Indian SME market is already an important source of demand
for cloud services and some vendors believe that cost-efficient cloud service models have the potential to change the way that
Indian businesses operate.

IaaS/PaaS

• We believe there is considerable opportunity for vendors to tap into demand growth from Indian businesses and government
agencies for help to utilise cloud computing IaaS and PaaS. IaaS is seen as having a steep growth trajectory in India due to the
potential of this business model to help smaller firms keep down the cost of their IT infrastructure. The growth prospects of IaaS
in India are also boosted by the fact that there is relatively low penetration for on-premises infrastructure deployments relative to
more developed markets.
• Major internet service providers and data centre service providers in India such as Bharti Airtel, Sify, NetMagic, and Adani
Group continue to invest in facilities and platforms to support a roll-out of cloud services. New cloud computing offerings are
expected to fuel further demand from local end-users to utilise this technology. At the moment, however, the low level of
broadband penetration and incomplete infrastructure remains a barrier to the widespread promotion of software-on-demand
solutions.

THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

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Downside Risks Weigh On Attractiveness


Cloud Readiness Index - 2020

Source: Asia Cloud Computing Association

IoT And 5G

• IoT remained a nebulous technology for India, even in 2020. IoT refers to the wider implementation of networked technologies
across a range of verticals to track performance in real time, in order to increase efficiency, expand capabilities and reduce errors.
Leading applications from the first wave include asset tracking, connected cars, manufacturing, healthcare and smart
infrastructure.
• We believe there is widespread potential for IoT development in India due to a lack of legacy infrastructure and plans to make
rapid upgrades over the medium term. This will create opportunities for software and services vendors, while telecoms operators
provide the connectivity component of the value chain.
• The government is a key player in the IoT market in India as a result of its control of large infrastructure projects. The
government's National Digital Communications Policy, passed in 2018, highlighted IoT as a key technology to drive growth in the
digital economy. This is a clear sign that the government aims to create a positive environment for adoption of the technology.
Both public and private players are focused on deploying IoT in the agriculture, health services, energy, and security sectors,
among others.
• The government plans to fund the development of resource centres and test-beds as a common experimental facility for
carrying out experiments in order to boost IoT. The government, in partnership with IT industry body NASSCOM and other
industry associations, also plans to set up incubation centres.
• The Department of Telecommunications has yet to announce any plans to auction 5G spectrum, and a March 2021 auction had
focused exclusively on the allocation of 4G-compatible bandwidth. High spectrum prices have been the key hindrance for
operators, although telcos have also noted that mass market appetite for 5G is not yet present. Concerns have also emerged
that India does not have sufficient mid-band 5G spectrum (3.5GHz) to support advanced applications. Only 175MHz is expected
to be offered to telecoms operators; the remaining spectrum will be reserved for government agencies, including the
Department of Defense and the Department of Space.

THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

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India Information Technology Report | Q2 2021

Industry Trends And Developments


Key View: India's IT market is substantial and is heavily skewed toward the services segment, given its position as one of the leading
business process outsourcing centres in the world. In recent years, domestic manufacturing of IT devices has increased, following
governmental initiatives to attract foreign investment into domestic production lines. We have a positive outlook on the long-term
potential on the market, though as a manufacturer of lower-end IT hardware, the country will continue to rely heavily on foreign
supply chains to meet its needs for higher-end computing products. Levels of automation are still extremely low, with domestic
manufacturing seen widely by the state as a way to lower unemployment in the country, prompting the need for greater labour
market reforms to move India up the IT value chain. To support growth in the data centre and high-end cloud infrastructure
segments, we also expect greater investment into broadband and reliable power generation and transmission infrastructure.

IT Trade

• Despite being one of the largest economies in the emerging Asia Pacific (APAC) bloc, on a per-capita basis, the real value of the IT
sector is unevenly distributed, concentrated in the more affluent and resource-rich areas of the country. Few consumers or
businesses have access to advanced IT hardware despite increasing volumes of equipment being manufactured there. The
greatest issue has been the limited growth in disposable incomes in the country.
• For many years India has been a net importer of IT hardware, but the upside to this is that many of the leading global IT vendors
have established deep-rooted links in the country; these relationships are beginning to pay off, with India now becoming a
stronger importer of hardware as the country looks to establish a more credible presence in the cloud computing and digital
security space. Regulatory weaknesses make India a moderately high-risk investment destination.
• In 2019, India's IT hardware deficit widened to almost USD21.3bn from USD19.0bn in 2018 (see table below). The widening
deficit was largely due to a 19.6% annual increase in the imports of electronics components. This reflects India's growing status
as a low-cost production base for international original equipment manufacturers. Indian vendors are beginning to import more
components for both foreign and indigenously developed products. We do highlight, however, that most work done in India
continues to be assembly rather than production of hardware components.
• The global Covid-19 pandemic, coupled with other external factors, such as the protracted US-China trade war will pose
significant downsides for the IT market in India, both in terms of imports and exports. A weaker global trade environment will also
weigh on domestic IT sales.
• Despite a slight increase in exports of electronics components - primarily low-value diodes and transistors - in 2019, Indian IT
exports accounted for just over 0.3% of total national exports. This trend has been roughly stable for many years.

INDIA IT HARDWARE TRADE (2014-2019)


2014 2015 2016 2017 2018 2019

Trade Balance (USDmn)

IT Hardware -5,331 -6,059 -5,438 -6,054 -6,828 -7,001

Computer Parts -1,326 -1,176 -1,024 -1,127 -1,239 -1,238

Electronic
-2,578 -3,974 -5,293 -7,216 -10,934 -13,076
Components

Total -9,235 -11,210 -11,755 -14,397 -19,001 -21,315

Exports (USDmn)

IT Hardware 219 226 134 166 226 226

Computer Parts 117 120 121 127 115 112

Electronic 443 370 336 383 508 719


THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

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India Information Technology Report | Q2 2021

2014 2015 2016 2017 2018 2019

Components

Total 780 715 591 676 849 1,056

(As a % of
0.25 0.27 0.23 0.23 0.26 0.33
National Exports)

Imports (USDmn)

IT Hardware 5,551 6,286 5,571 6,220 7,053 7,227

Computer Parts 1,443 1,296 1,145 1,254 1,354 1,350

Electronic
3,021 4,343 5,629 7,599 11,442 13,795
Components

Total 10,015 11,925 12,346 15,072 19,850 22,371

(As a % of
2.18 3.05 3.46 3.40 3.90 4.66
National Imports)

Source: Intracen, Fitch Solutions

IT Industry Analysis

• India's vast market and growth potential provides the greatest appeal for investors, with the country benefitting from significant
natural resources and an expanding manufacturing base, supported by a huge working-age population and relatively robust
transport connections.
• The opportunities offered by these advantages are accompanied by some significant risks, including a high terrorist threat,
widespread corruption, excessive bureaucracy and weak utility infrastructure, all of which increase the costs and obstacles of
operating in India. India is, therefore, a difficult place to do business, reflected in an overall score of 53.8 out of a potential 100
points in our Operational Risk Index, scoring just slightly above the average of 52.7 points for emerging APAC, but significantly
under the 75.4 score registered by developed APAC.
• As the second most populated country in the world, behind only neighbouring China, India presents investors with a substantial
potential labour pool. The country's minimum wage is relatively competitive and businesses benefit further from a high degree
of labour flexibility. The main labour market risks to businesses are in terms of the poor provision of education at primary and
secondary level. Though enrolment rates have increased in recent years, actual attendance is low and many children leave
school without attaining any basic skills, severely restricting the size of the skilled labour force.
• India's weak literacy rate sees the country fall behind many of its regional peers. Somewhat offsetting this is the high volume of
tertiary education graduates in key fields, such as science and engineering, which reduces the demand for imported skilled
labour and which greatly appeals to investors in the IT space.
• Investors may be deterred mostly by the high level of restrictions placed on foreign ownership and the excessive bureaucracy
that makes opening and closing a business difficult, costly and time-consuming. Further risks stem from corruption, which is
pervasive throughout Indian government bodies and the judicial system, creating a highly uncertain investment environment.

THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

fitchsolutions.com
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India Information Technology Report | Q2 2021

Operational Risk Indices


2020

Note: Scores out of 100; higher score = lower risk. Source: Fitch Solutions

• India generally scores close to the APAC average in most of our Operational Risk categories relevant to the IT industry. The
country continues to be held back by risks relating to its workforce, with the majority of sectoral employees being of low-skilled
status and even specialised individuals tending to work for large multinational organisations for relatively low wages.
• Though India is home to a number of internationally recognised IT players such as Wipro, Sasken and Infosys, many high-
skilled workers elect to take up positions in other countries, limiting India's level of innovation. The large, low-skilled workforce
does present some upsides to risk, however, as the labour pool is highly flexible and can quickly adapt to new procedures and
customer requirements, while those companies seeking to operate in the country can be assured of low operational costs and
minimal regulatory interference.
• India continues to enjoy robust foreign investment into its IT sector. In FY2019/20 (ending March 2020), as much as INR542.5bn
(USD7.7bn) was invested by foreign entities into the country's computer software and hardware segment, up from INR453.0bn
(USD6.4bn) recorded in FY2018/19, based on data from the Department for Promotion of Industry and Internal Trade.
Cumulative inflows from FY1999/2000 totalled INR2.8trn (USD44.9bn). We believe that bilateral partnerships between India
and other countries to promote the domestic IT industry will continue to drive further FDI into the sector.
• In June 2020, reports suggested that the Department of Telecommunications (DoT) push telecoms vendors with existing
manufacturing in India, including Ericsson and Nokia, to manufacture equipment using 100% local components, with the plan
aimed at reducing dependency on foreign-made components and minimising the probability of cyber-espionage by foreign
parties.
• In January 2020, Japanese operator NTT announced plans to invest as much as USD1.5bn into data centre projects in India. The
company currently operates 1.2mn sq ft of capacity across four Indian cities and plans to add 1.5mn sq ft of new space.
• Contract manufacturer Foxconn expanded its assembly capabilities in the country in 2019, catered primarily to the assembly of
Apple handsets. Local media reports in February 2019 further suggest that ZTE is studying plans to begin manufacturing
handsets in India, while Huawei is considering resuming production of its carrier and enterprise products in the country.
Separately, Ericsson is outlining plans to expand its domestic manufacturing capabilities to meet export demand for its telecoms
equipment.
• Data centre investments by foreign cloud providers into India has also maintained its steam. Oracle was intending to open its
first Indian data centre in the city of Mumbai by the end of 2019, and would focus on Platform-as-a-Service (PaaS) and
Infrastructure-as-a-Service (IaaS) workloads. Alibaba Cloud launched its first data centre in January 2018 in Mumbai, and
followed up with a second data centre launch in September 2018.

THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

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India Information Technology Report | Q2 2021

IT Sector Foreign Direct Investment


India - Computer Software And Hardware FDI (INRmn)

Source: DIPP, Fitch Solutions

Government IT Industry Policies

• Government schemes are now an important Indian market opportunity for vendors. Initiatives such as the five-year e-
government and smart ID programmes will fuel long-term demand for IT hardware. The roadmap for a private government cloud
also bodes well for vendors as the government looks set to continue heavy investment in hardware and services.
• In April 2020, the government launched the Production Linked Incentive Scheme for Large Scale Electronics Manufacturing to
incentivise makers of electronics components, including Assembly, Testing, Marking and Packaging units to start or build up their
existing domestic manufacturing capacity. The scheme will extend an incentive of 4% to 6% on incremental sales of goods
manufactured in India and covered under target segments, to eligible companies, for a period of five years.
• In India's FY2020/21 Union Budget presented in February 2020, the government outlined plans to boost data
centre investments and construction in the country. While the exact details were not clear, the plan would reportedly reform
foreign investment restrictions for data centres, as well as allow for private sector data centre parks to be constructed. The
government is also earmarking INR80bn (USD1.1bn) for investments into quantum computing technology. The developments
come on the back of investments by other big technology companies, including Samsung and Xiaomi, which have all
established domestic manufacturing lines under the 'Make in India' initiative.
• In February 2019, the Union Cabinet approved the National Policy on Software Products, aimed at developing India as a hub for
software development and growing India's market share in the global software industry by 10-fold. The government has made
available INR15bn (USD216.2mn) over the next seven years to be put into two separate funds: the Software Product
Development Fund, and Research and Innovation Fund. The government aims to incubate 10,000 technology start-
ups specialising in software and develop a robust talent pool.
• In June 2018, the government think tank NITI Aayog released a working paper containing a set of policy recommendations to
the government on how to adopt artificial intelligence (AI) to improve economic growth and social inclusion. The paper focuses
on several different industries, including agriculture, education, and mobility. The paper also proposed the creation of academic
research hubs, as well as industry-led AI transformation centres. In the government's 2019 Interim Budget, it was announced
that a National Programme of AI is being planned, and as part of the initiative a National Centre of Artificial Intelligence will be
established. Reportedly, the initiative will focus on nine key priority areas.
• In the National Digital Communications Policy 2018, the government highlighted three key strategies: Connect India, to improve
the country's digital communications infrastructure, Propel India, to invigorate the growth of disruptive technologies, such as AI,
IoT and 5G, and Secure India, aimed at improving India's cybersecurity capabilities.
• In November 2018, French company Atos was awarded an INR45bn (USD650mn) contract to build 70 supercomputers for
THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

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India Information Technology Report | Q2 2021

India. Reportedly, the initial few deliveries would feature all imported parts, and subsequent shipments of supercomputers would
feature, to some degree, locally manufactured parts, with Atos partnering with Indian contractors in the cities of Chennai and
Pune for the parts. In following phases of manufacture, the Centre for Development of Advanced Computing would be involved
in the design process. The supercomputers will initially be deployed in Institutes of Information Technology throughout the
country, and will be connected to a common grid.
• As noted above, government policies and incentives are key to the development of the local IT industry and Narendra Modi's
government has been pushing for greater open accessibility to important national projects. IT is seen as an essential tool for
developing and diversifying the Indian economy. However, a lack of regulatory cohesion and the ability of the individual state
governments to pick and choose the degree to which they allow international companies to collaborate stands as the principal
barrier to these aims.
• Structural issues, such as the lack of transmission and broadband infrastructure, coupled with a bureaucratic operating
environment continue to pose challenges to businesses seeking to invest and operate in the Indian market.

THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

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India Information Technology Report | Q2 2021

Competitive Landscape
India IT Companies

Tata Consultancy Services

Tata Consultancy Services (TCS) is India's leading IT services, consulting and business solutions company, and a major player on
the global stage. A subsidiary of the influential Tata Group conglomerate, TCS is listed on the Bombay Stock Exchange and the
National Stock Exchange of India. As of August 2019, the company had a market capitalisation of INR8.4trn (USD116.5bn), making it
the most valuable company in India.

Established in 1968, TCS has grown both organically and through acquisitions and now comprises 50 subsidiaries (as of FY2020,
ending March 2020), which provide a wide range of IT-related products and services, including application development, business
process outsourcing, capacity planning, consulting enterprise software, payment processing, software management and
technology education services. TCS stated that demand for its cloud services has jumped amid the Covid-19 pandemic, and has
said it has been quick to deploy remote workplace solutions for its clients to support the surge in demand for telecommuting
platforms.

TCS has made little headway in terms of acquisitions in FY2019/20. In June 2019, TCS increased its stake in its Japanese joint
venture with Mitsubishi Corporation by an additional 15% to 66%. In November 2018, TCS made two acquisitions. It first
acquired London-based digital design studio W12 Studios for an undisclosed sum as part of its broader efforts to boost its digital
and creative design capabilities. It also bought US-based management consulting company BridgePoint Group, which specialises
in retirement services. TCS has stated that the acquisition will augment its knowledge in the financial and insurance services
domain.

In September 2017, TCS unveiled its new Business 4.0 thought leadership framework to help its clients identify and adopt new
digital technologies such as artificial intelligence (AI) and blockchain. As part of its Agile model, TCS also introduced its Machine First
Delivery Model (MFDM) to integrate analytics, AI and automation into its clients' existing business processes to create more efficient
and effective machine-driven models.

THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

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India Information Technology Report | Q2 2021

Revenue Growth Remains Strong


TCS - Revenue & Net Income (INRmn), FY2014-FY2020

Note: Financial year ends March (ie, FY2020 = financial year ending March 2020). Source: TCS, Fitch Solutions

THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

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Infosys

Infosys is India's second-largest IT services and solutions vendor in terms of revenues, and at the end of FY2020 had 1,458 clients
and employed over 239,000 people. Headquartered in Bangalore, the company has a multinational presence across 46 key
emerging and mature markets around the world. As of August 2020, Infosys had a market capitalisation of INR4.0trn (USD54.5bn).

Infosys provides software development, maintenance and independent validation services to companies in industry verticals such
as banking, finance, insurance, and manufacturing, among others. Infosys' end-to-end business solutions include:

• Consulting Services.
• Business Application Services - enterprise system implementation and services, digital solutions and services, data analytics,
business process management.
• Technology Services - application development, modernisation and management, cloud infrastructure and security, engineering
services, enterprise mobility, Internet of Things (IoT), software testing.
• Outsourcing Services - application outsourcing, business process outsourcing (including customer service, finance and
accounting, human resources), sourcing and procurement process outsourcing.

Infosys' products and platform solutions include Mana, the Infosys Information Platform (IIP), the Edge product suite, Skava, Panaya
and Finacle, a leading universal banking solution. In March 2015, Infosys acquired for USD225mn 100% of US-based Panaya, a
leading provider of automation technology for large-scale enterprise and software management. Panaya's CloudQuality suite
positions Infosys to bring automation to several of its service lines via an agile SaaS model and helps mitigate risk, reduce costs and
shorten time to market for clients.

Infosys has stated that the impact of the Covid-19 pandemic to its Q4FY19/20 business has not been significant, though it does
anticipate a slowdown in client technology spending in the near term, in light of weaker economic growth. The company sees long-
term opportunities in the acceleration of digital transformation initiatives.

In 2018, the company began to adopt a four-pronged strategy to strengthen its relevance to clients and drive accelerated value
creation. The four pillars are: scale agile digital through investments in its digital capabilities, energise the core by looking at
transformation initiatives such as new technologies, including AI, reskill its employees, and expand localisation by opening new
operation hubs globally to cater to different markets.

In August 2020, Infosys signed a five-year agreement with cloud customer experience and contact centre solutions
provider Genesys to expand its capabilities to customers. In April 2019, Infosys formalised a joint venture with Hitachi, Panasonic
and Pasona to enhance its presence among Japanese corporations. The new joint venture, named HIPUS, will assist Japanese
companies with end-to-end digital procurement platforms. In October 2018, Infosys completed the acquisition of Fluido, the
largest Salesforce consulting partner in the Nordics, to strengthen its position as a leading Salesforce enterprise cloud services
provider. The company plans to leverage Fluido's client relationships to expand its presence in the region. Fluido has clients across
industries, including manufacturing, retail, energy, and telecommunications. The acquisition was for a total consideration of
EUR65mn (USD72mn).

In September 2017, Infosys completed the acquisition of UK-based Brilliant Basics for around GBP7.5mn. Brilliant Basics
specialises in customer experience and product design. In November 2015, Infosys acquired 100% of Noah Consulting, a leading
provider of advanced information management consulting services for the oil and gas industry. This acquisition combines Noah's
industry knowledge, information strategy planning, data governance and architecture capabilities with Infosys' ability to provide
technology and outsourcing services on a global scale to oil and gas clients.

THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

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Business Growth Reflected In Strengthening Financials


Infosys - Revenue & Net Income (INRmn), FY2014-FY2020

Note: Financial year ends March (ie, FY2020 = financial year ending March 2020). Source: Infosys, Fitch Solutions

Wipro

Wipro is an India-based provider of IT solutions and services for global clients. Active in the sector since 1981, the company as of
FY2020 had over 180,000 employees and was present in more than 55 markets worldwide. Wipro provides a broad range of
services, including digital strategy advisory, customer-centric design, technology consulting, custom application design,
development, re-engineering and maintenance, systems integration, package implementation, infrastructure services, business
process services, cloud, mobility and analytics services, research and development and design of hardware and software.

Wipro offers its customers a variety of commercial models including time and material, fixed price, capacity based, as-a-service and
outcome-based models. The company offers these services globally by leveraging its products, platforms, partnerships and
solutions including state-of-the-art automation technologies such as its proprietary cognitive intelligence tool, Wipro HOLMES. In
June 2019, Wipro announced the acquisition of US-based digital engineering and manufacturing solutions company International
TechneGroup Incorporated (ITI). The USD45mn acquisition is part of Wipro's strategy to further offer end-to-end solutions in
disruptive Industry 4.0 technologies to its clients, and ITI's services will be consolidated as part of Wipro's Industrial and Engineering
Services division.

Wipro warned that the Covid-19 pandemic could adversely affect its clients' spending on technology and impact demand for
prospective projects and ramp-ups, increase requests for furloughs, increase pricing pressure, and impact cash conversion cycles.
The company has declined to provide guidance on its results moving forward, citing the unpredictability of the duration and severity
of the pandemic.

In July 2020, Wipro announced that it would acquire Salesfore implementation partner 4C for EUR68mn (USD80.9mm). 4C is
headquartered in Belgium, and is one of the largest Salesforce partners in the UK, Europe and Middle East region. In the same
month, it acquired IVIA Serviços, a Brazillian IT services provider in the financial services and manufacturing sectors, for
USD22.4mn.

In February 2019, Wipro stated that it would sell its Workday and Cornerstone OnDemand HR practices to US-based HR and finance
solutions provider Alight Solutions for a total of USD110mn. The sale follows its July 2018 acquisition of the Indian arm of Alight
for a total consideration of USD117mn, with Wipro taking on responsibility for the services delivered from Alight's India locations. In
September 2018, Wipro won a 10-year USD1.5bn deal from Alight to transform its digital offerings across an entire spectrum
THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

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including HR and finance. Wipro has been actively soliciting a broader client base.

In March 2018, Wipro invested USD2.2mn for a minority stake in AI start-up Avaamo. The US-based start-up provides an AI-driven
enterprise bot platform which helps companies deploy enterprise bots to their employees and customers. In February 2016, Wipro
acquired HealthPlan Services, a provider of technology platforms and a fully integrated Business Process as a Service (BPaaS)
solution to health insurance companies (Payers) in the individual, group and ancillary markets. HealthPlan Services provides US
Payers with a diversified portfolio of health insurance products delivered through its proprietary technology platform.

In January 2016, Wipro acquired Germany-based Cellent, an IT consulting and software services company offering IT solutions and
services to customers in Germany, Switzerland and Austria. Cellent provides Wipro with scale and customer relationships, in the
Manufacturing and Automotive domains in Germany, Switzerland and Austria. In August 2015, Wipro acquired Denmark-based
Designit, a global strategic design firm specialising in designing transformative product-service experiences. The acquisition will
strengthen Wipro's digital offerings, combining engineering and transformative technology with human centred-design methods.

Sales Performance On Upward Trajectory


Wipro - Revenue & Net Income (INRmn), FY2014-FY2020

Note: Financial year ends March (ie, FY2020 = financial year ending March 2020). Source: Wipro, Fitch Solutions

HCL Infosystems

Founded in 1976, HCL Infosystems has established itself as one of India's leading companies in the areas of services and ICT
systems integration. Over the years, the company has developed specialised expertise across verticals, including telecoms, BFSI, e-
governance and power.

HCL Infosystems' range of IT products and services includes computing, storage, networking, security, telecoms, imaging and retail.
During FY2019, the company undertook further consolidation, and focused on its Enterprise Distribution, Consumer Distribution,
Overseas Services and System Integration businesses. This follows on its FY2014 restructuring to exit its loss-making Computing
Products and Hardware Solutions businesses. HCL also changed its focus in its Systems Integration business from growth to
disciplined execution of existing projects and revamped the business model of its Learning business from a hardware-driven asset-
heavy model to a content-driven asset-light model.

In June 2018, Apple terminated its distribution agreement with the company effective March 2019. As revenues remain under
THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

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pressure and the company's overall fiscal future grows bleak, the firm is looking to sell its Dubai-based HCL Infosystems
MEA FZE subsidiary.

Focused On Narrowing Losses


HCL Infosystems - Revenue & Net Income (INRmn), FY2014-FY2019

Note: Financial year ends March (ie, FY2019 = financial year ending March 2019). Source: HCL Infosystems, Fitch Solutions

Retailers

Electronics

The growing popularity of online retail is likely to have an adverse effect on conventional electronics retailers. Price advantage and
fast deliveries are luring Indian customers, and some brick-and-mortar players are reconsidering their plans. Croma, a subsidiary of
Tata Group, is shelving plans for aggressive nationwide expansion and is planning to focus on growing in the locations where it
already operates its over 120 stores across 25 cities. On the other hand, Reliance Digital, the largest physical retailers of consumer
electronics and household appliances in India, is proceeding with its business model, which includes a widespread store expansion.
At the end of FY2019, Reliance Digital had 357 stores across 166 cities.

Smartphone sales buoy the electronics retail business and encourage retailers to focus on this particular product segment, striking
deals with manufacturers and seeking ways to diversify the offering. The government's move to further relax foreign direct
investment (FDI) limits on single brand retail and the removal of local sourcing requirement norms will further benefit international
smartphone vendors, such as Apple, to open up their own retail stores - a much-coveted prospect for global conglomerates, which
have been hit by consumption slowdown in China.

In February 2020, Amazon made a long-term business agreement with local retailer Future Retail, extending the local retailer's
reach beyond its 1,500 physical locations within India by leveraging Amazon's platform. Amazon will then become Future Retail's
authorised online sales channel, covering its Big Bazaar and Foodhall grocery and lifestyle chains. The product focus will cover
several product categories.

Xiaomi sells smartphones, mobile apps, laptops, bags, trimmers, earphones, MI television, shoes, fitness bands and other products
in India. The company's retail network includes Mi Homes, Mi Studios and Mi Stores. Xiaomi has become the leader of single-brand
retail network with the largest exclusive brand retail network in India. In 2019, Xiaomi announced that Mi.com, the company's online
THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

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retail platform, became the top single brand online smartphone channel. There are currently 70 Mi Home stores and
approximately 7,500 authorised dealers. The company is expanding its India product portfolio to include pricier, high-spec
smartphones and smart TVs.

Other Chinese smartphone manufacturers looking to expand in India include Vivo. In February 2020, Chinese smartphone brand
Vivo opened an experiential flagship store in Thane, Maharashtra as Vivo India considers 250 new stores in 2020.

MAJOR ELECTRONICS RETAIL COMPANIES


Company Parent/Ownership Sub-Sector Stores

Croma Infiniti Retail, owned by Tata Group Consumer Electronics Over 120

Reliance Digital Reliance Industries Consumer Electronics 357

Source: Company reports, Fitch Solutions

E-Commerce

India has a thriving e-commerce segment, which is projected to be the third largest in Asia, worth a forecast USD66.3bn in 2019 and
rising up to USD92.1bn by 2022, an annual average growth of 14.1% annually between 2018 and 2022. The e-commerce sector
has been the main change in India's retail market in recent years. Due to limitations on the activity that international retailers are
allowed to undertake in the market, e-commerce has been driven by local firms such as Flipkart and Snapdeal. Many Indian brick-
and-mortar retailers are also entering the e-commerce segment because of the high mobile penetration in the country. Online
retailers are increasingly targeting this market with m-commerce websites. Retailers involved in this area include Snapdeal, Myntra
and Voonik.

Opportunities are winning over challenges in India's e-commerce sector, with international majors choosing to navigate the
country's market, as it is just too big to ignore. For example, the US retailer Walmart acquired a majority stake of 77% in domestic
retailer Flipkart for USD16bn in May 2018. Flipkart retains its market position after securing USD2.5bn in funding from Japanese
investor Softbank. This is the second of its major funding, after receiving USD1.4bn in funding from
China's Tencent, eBay and Microsoft. The investment will also see Flipkart taking control of eBay India, which will remain an
independent e-commerce website. In a bid to strengthen its logistics service and support its last-mile delivery,
Flipkart's subsidiary Instakart Services is set to invest INR9.9bn in setting up a logistics hub in West Bengal.

This puts Walmart head-to-head with its rival Amazon in India, with the latter entering India in 2013 and announcing in June 2018
that it would pump a further USD2bn into its India operations to strengthen its foothold, having already committed USD5bn to the
market. Domestic 'bricks and mortar' companies are also realigning their strategies to include a focus on e-commerce.

The government's regulations on e-commerce have relaxed somewhat. FDI has been permitted in business-to-business online
retail, but in November 2015 the government relaxed FDI requirements across 15 industries, and single-brand retailers are now able
to sell directly online if they have an established physical store. US-based Amazon has already invested significantly in India. The
company is also planning to construct more fulfilment centres to support growing sales. It has been reported to be lobbying for
allowing foreign online retailers to have inventories. Currently, they are only able to operate as marketplaces of other sellers.

Amazon's entry has been particularly challenging for local e-commerce company Flipkart, easily the most successful Indian start-up
company in terms of fundraising, valuation and employment creation. To better compete in the e-commerce sphere, Flipkart had
been in talks to acquire Snapdeal, but the talks fell through in August 2017. Other players in the e-commerce market include
Patym, whose largest investor is Alibaba, which invested USD200mn in March 2017. Reliance Industries launched its consumer
electronics e-commerce site in Q220.

THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

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SELECT E-COMMERCE RETAILERS AND ONLINE MARKETPLACES


Company Majority Owner Sub-Sector Notes

Flipkart Walmart (77%) General Walmart acquired a 77% stake in Flipkart for USD16bn in May 2018.

Snapdeal Jasper Infotech Pvt General Investors include Alibaba, Foxconn and Softbank.

Shopclues Clues Network Pvt General Investors include Singapore's GIC.

Amazon India Amazon General


In August 2019, Amazon was in talks to acquire a stake in Reliance Retail.

Source: Company reports, Fitch Solutions

THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

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Regional Overview
Computer Hardware

In 2019 the leading global computer hardware vendors recorded modest revenue growth in US dollar terms -
with Dell, Lenovo, HP and Apple making gains. Dell was again by some distance the company with the highest hardware revenue
in 2019, but all these big four vendors had computer hardware revenue that was at least twice the value of fifth placed Canon.

The drivers of growth in 2019 for the big four varied by company. Dell recorded strong growth in commercial PC sales in 2019, the
largest part of its business, which compensated for flat sales of storage solutions, and declines in consumer PC and server solutions.
The growth in commercial PC sales was a feature of several sets of financial results in 2019, with investment triggered by enterprise
preparations for the end of Microsoft support for Windows 7 in January 2020.

Growth in Apple's computer hardware revenue in 2019 was much more reliant on consumer sales, both for its Mac and iPad line-
ups. During 2019 it released two new iPad Pro variants, as well as iPad Air, mini and classic - and this contributed to double-digit
revenue growth for the global tablet leader by triggering upgrades and supporting higher unit prices. Meanwhile, Mac revenue
growth was in the low-single digits in 2019 despite the launch of a new MacBook Air and Pro, and Mac mini and Mac Pro.

The only vendor to record double-digit growth in hardware revenues in 2019 was Microsoft - Surface revenue increased by 23% in
fiscal year 2019 - with the software giant reporting strong demand growth for both commercial and consumer segments with its
design focused approach and emphasis on hybrid designs. Meanwhile, more value-focused PC brands such
as ASUS and Acer recorded revenue declines in 2019, although they did have success in positioning themselves in the more
profitable gaming sub-category, which squeezed the position of gaming specialist and fellow Taiwanese vendor Micro-Star
International.

The clear underperformers in the computer hardware market in 2019 were again the printer and copier vendors - all of which are
Japanese brands - Canon, Ricoh, Seiko Epson, Kyocera and Brother Industries. Of these only Ricoh avoided a y-o-y contraction
in US dollar computer hardware revenues in 2019, and we estimate its sales were up by just 0.3%.

Server specialists also recorded weaker performance y-o-y in 2019, though the global market continued to be close to historic
highs because of investments in hosting capacity driven by increased usage of cloud and content services. Declines in 2019
echoed the performance of global market leader Dell's server division, with the trend also affecting HPE and Lenovo. The exception
was IBM (through its joint venture for server production and sales with Chinese vendor Inspur), which was the clear leader in China
ahead of second placed Huawei, and in 2019 it benefited from strong domestic server demand, including for AI-tailored servers
with GPU processors installed.

THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

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COMPUTER HARDWARE VENDORS


Financial Performance 2019* (USDmn)

APAC Group
Group Group Operating Computer Hardware as %
Company HQ Products Revenue Employees
Revenue Profit (loss) of Group Revenue
(group) (year end)

PCs, Monitors,
Dell US 92,027 2,389 87% na 157,000
Servers, Storage

PCs, Monitors,
Lenovo China 51,847 1,649 90% 22,294 57,000
Servers, Storage

HP US PCs, Printers 58,695 3,836 78% na 56,000

Apple US PCs 267,683 66,153 15% 85,387 137,000

Printers & Office


Canon Japan 32,961 1,602 59% 15,427 187,041
Equipment

Printers & Office


Ricoh Japan 18,510 708 50% 9,563 92,633
Equipment

ASUS Taiwan PCs 11,372 376 71% 5,118 14,500

Servers, Storage,
Fujitsu Japan 35,702 1,703 19% 27,347 132,138
PCs

Acer Taiwan PCs, Monitors 7,584 100 85% 3,062 7,240

Microsoft US PCs 134,249 49,323 4% na 144,000

IBM US Servers, storage 77,148 9,896 7% 16,430 350,600

TPV
Hong
Technology Monitors na na 56% na 26,345
Kong
(AOC)

HPE US Servers, storage 30,852 3,091 16% 7,204 61,600

Printers & Office


Seiko Epson Japan 9,694 462 47% 4,673 76,647
Equipment

Micro Star
Taiwan PCs, peripherals 3,900 193 100% 1,714 2,370
International

Cisco
US Servers, storage 51,697 14,106 7% 7,858 75,900
Systems

Oracle US Servers, storage 39,643 13,759 9% 5,143 136,000

Printers & Office


Kyocera Japan 14,736 1,186 23% 9,372 76,863
Equipment

Brother Printers & Office


Japan 5,935 607 54% 1,787 37,769
Industries Equipment

*calendarised financials. na = not available. Source: Bloomberg, Fitch Solutions

THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

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Software

The general trend for the largest software companies was for strong global revenue growth momentum during 2019 - with six of
the 13 largest companies recording double-digit growth in software revenues, despite all of them having annual revenues in excess
of USD2.5bn. Performances by Microsoft, Salesforce and Adobe were particularly strong in 2019, considering the rate of growth
they achieved while already at such large scale, which is historic growth without precedent. A common feature of all three firms'
success was a strategic focus on cloud technologies, both as an organic growth engine and in migrating existing customer bases to
software-as-a-service (SaaS) subscriptions.

Looking at the global snapshot of the industry in 2019, the software ecosystem continues to be heavily concentrated in the US,
with only two non-US vendors featuring in the top-10 global software firms by revenue. This picture would however be slightly
altered by the inclusion of gaming software, which would see Sony feature in the top-10, as would Chinese mobile gaming
giant Tencent.

Microsoft made a successful pivot to the cloud software model, with Office 365 Commercial reaching 180mn users and consumer
subscriptions increased to 34.8mn. Enterprise cloud software also recorded strong growth, with Dynamics 365 revenue growth of
47% in FY19, with cloud adoption offsetting declines in on-premises software revenues. This performance was far stronger than
other diversified software vendors that led in the on-premises era, such as Oracle, IBM and SAP - with Oracle and IBM's software
revenues stagnating in 2019 and SAP's growth rate of 5.9% falling far below the performance of SaaS-focused companies
like Salesforce or Microsoft. IBM's software revenue was also negatively affected by the sale of some software product lines
to HCL Technologies in December 2018.

The rest of the global leaders have a tighter product focus, and are leaders in their respective fields. For instance, Adobe’s creative
products are world-leading; Intuit sells tax preparation software in the US to SMEs, accountants and
consumers; Dassault and Autodesk sell design software; SAS specialises in analytics; and, VMWare is a software virtualisation
company. Meanwhile, Broadcom was a new name in the ranking of largest software companies by revenue after it completed the
USD18.9bn acquisition of CA Technologies in 2018, contributing to its infrastructure software revenues of almost USD5.2bn in
2019. Broadcom is set to increase its software revenues further with the USD10.7bn acquisition of Symantec's enterprise security
business - a deal that completed in November 2019. After the deal completed Symantec renamed itself NortonLifeLock, which
will focus on consumer and small enterprise sales.

SOFTWARE VENDORS
Financial Performance 2019* (USDmn)

Group APAC Group


Group Software as % of
Company HQ Products Operating Revenue Employees
Revenue Group Revenue
Profit (loss) (group) (year end)

Applications,
Microsoft US 134,249 49,323 64% na 144,000
systems, consumer

Applications,
Oracle US 39,643 13,759 83% 5,143 136,000
systems

Applications,
IBM US middleware and 77,148 9,896 27% 16,430 350,600
systems

Applications,
SAP Germany 30,819 4,995 58% 4,758 100,330
systems

Salesforce.com US Applications 16,781 317 94% 1,587 35,995

THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

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Financial Performance 2019* (USDmn)

Adobe US Applications 11,334 2,840 89% 1,700 22,634

Intuit US Applications 7,062 1,899 95% na 9,400

Infrastructure
Broadcom** US 22,597 3,444 23% 15,231 19,000
software

Applications,
VMWare US 10,712 1,471 47% na 24,200
systems

Dassault Systemes France Applications 4,497 910 88% 1,221 20,000

SAS US Applications 3,100 na 95% 465 13,939

Norton LifeLock Applications,


US 3,090 394 95% na 11,900
(formerly Symantec) systems, consumer

Autodesk US Applications 3,220 312 84% 625 10,100

*calendarised financials. na = not available. Source: Bloomberg, Fitch Solutions

IT Services

Compared to the computer hardware market - and even more so the software and cloud markets - the global IT services
competitive landscape is geographically diverse. The list of the IT services firms ranked by their 2019 global revenues includes firms
from the US that sit at the top of the table, but there are also firms from Japan, India, France and Canada. This is a reflection of two
characteristics of the IT services market, first the role of locally provided services that have a large component of on-site access.
Second is the role of outsourcing, which is the key revenue line for several of the largest firms in 2019, but especially the Indian
vendors.

Indian firms are the only emerging market IT services companies featuring in the global top-15 by revenue in 2019, but there are
several economies that have developed large technology outsourcing industries that offer software customisation and custom
development services. The common feature they share are low cost and highly skilled labour, including India, Vietnam, China and
the Philippines in Asia, and then Ukraine, Romania, Poland, the Czech Republic and Hungary in Central and Eastern Europe.

At the company level there was a divergence in performance depending on the solution suite of IT services vendors. Those with a
developed market focus and with a strong portfolio of cloud adjacent services saw robust growth, such as Accenture and NTT
Data. Meanwhile, traditional services and outsourcing vendors that faced challenges in adapting to the new product landscape in
the cloud era were the relative underperformers, such as DXC Technology, Fujitsu, Hitachi and IBM.

IT SERVICES VENDORS
Financial Performance 2019* (USDmn)

Group IT Services as % APAC Group


Group
Company HQ Products Operating of Group Revenue Employees
Revenue
Profit (loss) Revenue (group) (year end)

Accenture US Consulting, outsourcing 44,197 6,477 100% 8,742 492,000

Development, consulting,
IBM US infrastructure, outsourcing, 77,148 9,896 54% 16,430 350,600
maintenance

Development, maintenance,
HPE US 30,852 3,091 84% 7,204 61,600
outsourcing

THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

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Financial Performance 2019* (USDmn)

Development, infrastructure,
Fujitsu Japan 1,703 69% 27,347 132,138
outsourcing 35,702

Tata
Development, outsourcing,
Consultancy India 21,847 5,422 100% 3,758 424,285
infrastructure
Services

Consulting, outsourcing,
NTT Data Japan 1,346 100% na 123,884
development, infrastructure 20,681

DXC Infrastructure, consulting,


US 19,871 (3,867) 100% na 130,000
Technology development

Consulting, infrastructure,
Hitachi Japan 2,193 24% 58,031 295,941
maintenance 82,901

Cognizant US Consulting, outsourcing 2,453 100% 1,053 292,500


16,783

Consulting, outsourcing,
CapGemini France 1,603 100% 1,265 219,300
infrastructure 15,813

Consulting, infrastructure,
Atos France 740 100% 908 108,317
managed services 12,973

Development, outsourcing,
Infosys India 2,725 100% 1,822 228,123
infrastructure 12,651

HCL Development, outsourcing,


India 1,880 100% 1,425 137,965
Technologies infrastructure 9,610

Infrastructure, consulting,
CGI Group Canada 1,375 100% 456 77,500
outsourcing 9,127

Development, outsourcing,
Wipro India 1,480 95% 1,446 171,425
consulting, infrastructure 8,568

*calendarised financials. na = not available. Source: Bloomberg, Fitch Solutions

Cloud

The largest cloud computing companies globally all recorded robust growth in revenue in 2019, reflecting the huge opportunities
available in a rapidly expanding market. Cloud technologies were both creating new markets for IT vendors to tap into because of
the power of centralised computing power, and the flexibility and scalability offered by on-demand business models. There was also
a second growth dimension in the migration of existing hardware and software deployments that were on-premises to the as-a-
service (aaS) mode of delivery, which was applicable to IT vendors with long-held customer bases
like Microsoft, IBM, Oracle and SAP.

In 2019 there were two clear global market leaders in the cloud computing space - Microsoft and Amazon - and both vendors
reported high double-digit revenue growth rates while already at USD20bn+ scale going into 2019, which is unprecedented.
Amazon Web Services was still the largest public cloud service globally in 2019, with infrastructure-as-a-service (IaaS) revenues that
put it ahead of Microsoft's Azure services, as well as other rivals like Google, Alibaba and IBM. Our rankings put Microsoft ahead for
overall cloud revenues once software-as-a-service (SaaS) is included, with Microsoft reporting strong performance for products
such as commercial and consumer Office 365 and cloud versions of its enterprise software solutions.

IBM and Google were the main challengers to the cloud infrastructure market leaders in 2019, while Salesforce had built a strong
position in the enterprise SaaS space that was second only to Microsoft, and put it ahead of Adobe and on-premises enterprise
THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

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resource planning (ERP) giants SAP and Oracle. Of these companies it was Google that recorded the fastest growth in 2019, a
return on its huge investment in its Google Cloud Platform, at around USD13bn in 2019. Google capitalised on its areas of expertise
in machine learning and AI, but it also rapidly built its customer base with traditional strategies like a broader product portfolio that
included vertical specific solutions, along with aggressive pricing and channel development.

AWS and Microsoft are the global cloud leaders not only in terms of revenue - but also service innovation, infrastructure and
geographic reach of sales and support teams. One exception is China where domestic
vendors Alibaba, Tencent and Baidu dominate the market, with Alibaba the clear market leader and benefits from partnerships
with Chinese telecoms companies that give its services an advantage in lower latency services compared to AWS or Microsoft.
Alibaba also looks to be best positioned to challenge AWS and Microsoft globally having already established a presence across
Southeast Asia, though it faces a challenge in diversifying beyond serving Chinese multinationals overseas operations. It is however
making the infrastructure investments that could underpin such an expansion, with CNY200bn (USD28bn) of investments
scheduled for 2020-2023 in data centres and cloud supporting technologies like AI chips.

CLOUD VENDORS
Financial Performance 2019* (USDmn)

Group Group Operating Cloud As % Of Group APAC Revenue Group Employees


Company HQ Products
Revenue Profit (loss) Revenues (group) (year end)

Microsoft US I/P/SaaS 134,249 49,323 33% na 144,000

Amazon (AWS) US I/P/SaaS 280,522 14,540 12% na 798,000

IBM US I/P/SaaS 77,148 9,896 27% 16,430 350,600

Salesforce.com US P/SaaS 16,781 317 94% 2,591 35,995

Google US I/P/SaaS 161,857 34,231 6% 27,516 118,899

Oracle US I/P/SaaS 39,643 13,759 21% 5,143 136,000

SAP Germany SaaS 30,819 4,995 25% 4,758 100,330

Adobe US SaaS 11,334 2,840 63% 1,700 22,634

Alibaba China I/P/SaaS 68,934 11,973 8% na 101,958

ServiceNow US SaaS 3,460 42 94% 318 10,371

Workday US SaaS 3,560 (499) 85% na 10,500

Tencent China I/P/SaaS 54,082 17,014 5% na 62,885

*calendarised financials. na = not available. Source: Bloomberg, Fitch Solutions

THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

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India Information Technology Report | Q2 2021

India Demographic Outlook


Demographic analysis is a key pillar of our macroeconomic and industry forecasting model. Not only is the total population of a
country a key variable in consumer demand, but an understanding of the demographic profile is essential to understanding issues
ranging from future population trends to productivity growth and government spending requirements.

The accompanying charts detail the population pyramid for 2019, the change in the structure of the population between 2019 and
2050 and the total population between 1990 and 2050. The tables show indicators from all of these charts, in addition to key
metrics such as population ratios, the urban/rural split and life expectancy.

Population
India - Population, mn (1990-2050)

e/f = Fitch Solutions estimate/forecast. Source: World Bank, UN, Fitch Solutions

Population Pyramid
India - 2019 Male vs Female Population, '000 (LHS) & 2019 vs 2050 Population, '000 (RHS)

Source: World Bank, UN, Fitch Solutions

THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

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India Information Technology Report | Q2 2021

POPULATION HEADLINE INDICATORS (INDIA 1990-2025)


Indicator 1990 2000 2005 2010 2015 2020e 2025f

Population, % y-o-y 1.78 1.59 1.36 1.12 0.99 0.88

Population, total, male, '000 453,257.4 549,387.9 597,052.2 642,164.2 681,223.3 717,101.0 750,331.5

Population, total, female, '000 420,020.4 507,187.7 550,557.7 592,117.0 628,929.1 662,903.4 694,680.1

Population, total, '000 873,277.8 1,056,575.5 1,147,609.9 1,234,281.2 1,310,152.4 1,380,004.4 1,445,011.6

Population ratio, male/female 1.08 1.08 1.08 1.08 1.08 1.08 1.08
e/f = Fitch Solutions estimate/forecast. Source: World Bank, UN, Fitch Solutions
KEY POPULATION RATIOS (INDIA 1990-2025)
Indicator 1990 2000 2005 2010 2015 2020e 2025f

Dependent ratio, % of total working age 71.7 64.2 59.9 56.0 51.6 48.7 46.5

Dependent population, total, '000 364,769.0 413,030.0 430,092.5 443,005.6 446,183.3 451,737.5 458,864.3

Active population, % of total population 58.2 60.9 62.5 64.1 65.9 67.3 68.2

Active population, total, '000 508,508.8 643,545.6 717,517.5 791,275.6 863,969.1 928,266.8 986,147.3

Youth population, % of total working age 65.2 57.0 52.4 48.1 43.1 38.9 35.5

Youth population, total, '000 331,545.8 366,904.8 375,719.6 380,285.2 372,623.1 361,017.6 349,629.3

Pensionable population, % of total working age 6.5 7.2 7.6 7.9 8.5 9.8 11.1

Pensionable population, '000 33,223.2 46,125.2 54,372.9 62,720.4 73,560.3 90,720.0 109,235.1
e/f = Fitch Solutions estimate/forecast. Source: World Bank, UN, Fitch Solutions
URBAN/RURAL POPULATION AND LIFE EXPECTANCY (INDIA 1990-2025)
Indicator 1990 2000 2005 2010 2015 2020e 2025f

Urban population, % of total 25.5 27.7 29.2 30.9 32.8 34.9 37.4

Rural population, % of total 74.5 72.3 70.8 69.1 67.2 65.1 62.6

Urban population, '000 223,096.3 292,322.8 335,503.8 381,763.2 429,428.7 481,980.3 540,188.7

Rural population, '000 650,181.5 764,252.8 812,106.2 852,518.0 880,723.7 898,024.1 904,822.9

Life expectancy at birth, male, years 57.5 61.7 63.7 65.7 67.5 68.7 69.6

Life expectancy at birth, female, years 58.2 63.3 65.4 67.7 69.8 71.2 72.4

Life expectancy at birth, average, years 57.9 62.5 64.5 66.7 68.6 69.9 70.9
e/f = Fitch Solutions estimate/forecast. Source: World Bank, UN, Fitch Solutions
POPULATION BY AGE GROUP (INDIA 1990-2025)
Indicator 1990 2000 2005 2010 2015 2020e 2025f

Population, 0-4 yrs, total, '000 121,958.6 127,837.3 129,543.0 128,212.3 118,983.3 116,879.5 116,147.7

Population, 5-9 yrs, total, '000 111,358.8 121,810.2 125,382.9 127,628.0 126,825.2 117,982.1 116,051.7

Population, 10-14 yrs, total, '000 98,228.4 117,257.2 120,793.7 124,445.0 126,814.5 126,156.0 117,429.9

Population, 15-19 yrs, total, '000 88,072.9 109,250.0 116,260.5 119,807.6 123,643.8 126,045.6 125,488.8

Population, 20-24 yrs, total, '000 78,385.7 96,140.1 107,868.7 114,839.1 118,706.0 122,504.8 125,033.6

Population, 25-29 yrs, total, '000 70,427.4 85,657.3 94,680.7 106,298.4 113,483.9 117,397.3 121,322.4

Population, 30-34 yrs, total, '000 62,344.3 76,001.9 84,290.8 93,233.7 104,894.5 112,176.1 116,197.5

Population, 35-39 yrs, total, '000 54,756.0 68,096.0 74,654.3 82,850.8 91,815.9 103,460.2 110,799.1

Population, 40-44 yrs, total, '000 41,775.8 59,906.0 66,648.3 73,122.4 81,321.9 90,219.9 101,823.0

Population, 45-49 yrs, total, '000 35,364.0 51,963.0 58,227.9 64,866.1 71,345.8 79,440.3 88,288.1
THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

fitchsolutions.com
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Indicator 1990 2000 2005 2010 2015 2020e 2025f

Population, 50-54 yrs, total, '000 31,352.3 38,739.6 49,861.1 55,995.0 62,557.0 68,876.0 76,865.0

Population, 55-59 yrs, total, '000 25,919.5 31,539.2 36,403.0 47,020.3 52,987.7 59,256.3 65,438.7

Population, 60-64 yrs, total, '000 20,110.8 26,252.5 28,622.0 33,242.2 43,212.5 48,890.5 54,891.2

Population, 65-69 yrs, total, '000 14,419.0 19,609.5 22,542.1 24,816.6 29,176.8 38,260.3 43,521.4

Population, 70-74 yrs, total, '000 9,526.3 13,157.9 15,558.7 18,102.0 20,257.2 24,091.4 31,828.2

Population, 75-79 yrs, total, '000 5,493.0 7,748.7 9,352.9 11,208.0 13,302.3 15,084.0 18,133.2

Population, 80-84 yrs, total, '000 2,643.5 3,798.5 4,631.6 5,694.7 7,047.2 8,489.0 9,768.6

Population, 85-89 yrs, total, '000 881.0 1,390.6 1,743.9 2,185.9 2,817.9 3,531.1 4,341.3

Population, 90-94 yrs, total, '000 217.9 344.0 437.4 570.1 760.0 993.0 1,277.2

Population, 95-99 yrs, total, '000 35.4 63.1 89.7 118.9 164.9 223.2 298.8

Population, 100+ yrs, total, '000 7.0 12.9 16.6 24.2 34.0 47.9 66.3
e/f = Fitch Solutions estimate/forecast. Source: World Bank, UN, Fitch Solutions
POPULATION BY AGE GROUP % (INDIA 1990-2025)
Indicator 1990 2000 2005 2010 2015 2020e 2025f

Population, 0-4 yrs, % total 13.97 12.10 11.29 10.39 9.08 8.47 8.04

Population, 5-9 yrs, % total 12.75 11.53 10.93 10.34 9.68 8.55 8.03

Population, 10-14 yrs, % total 11.25 11.10 10.53 10.08 9.68 9.14 8.13

Population, 15-19 yrs, % total 10.09 10.34 10.13 9.71 9.44 9.13 8.68

Population, 20-24 yrs, % total 8.98 9.10 9.40 9.30 9.06 8.88 8.65

Population, 25-29 yrs, % total 8.06 8.11 8.25 8.61 8.66 8.51 8.40

Population, 30-34 yrs, % total 7.14 7.19 7.34 7.55 8.01 8.13 8.04

Population, 35-39 yrs, % total 6.27 6.44 6.51 6.71 7.01 7.50 7.67

Population, 40-44 yrs, % total 4.78 5.67 5.81 5.92 6.21 6.54 7.05

Population, 45-49 yrs, % total 4.05 4.92 5.07 5.26 5.45 5.76 6.11

Population, 50-54 yrs, % total 3.59 3.67 4.34 4.54 4.77 4.99 5.32

Population, 55-59 yrs, % total 2.97 2.99 3.17 3.81 4.04 4.29 4.53

Population, 60-64 yrs, % total 2.30 2.48 2.49 2.69 3.30 3.54 3.80

Population, 65-69 yrs, % total 1.65 1.86 1.96 2.01 2.23 2.77 3.01

Population, 70-74 yrs, % total 1.09 1.25 1.36 1.47 1.55 1.75 2.20

Population, 75-79 yrs, % total 0.63 0.73 0.81 0.91 1.02 1.09 1.25

Population, 80-84 yrs, % total 0.30 0.36 0.40 0.46 0.54 0.62 0.68

Population, 85-89 yrs, % total 0.10 0.13 0.15 0.18 0.22 0.26 0.30

Population, 90-94 yrs, % total 0.02 0.03 0.04 0.05 0.06 0.07 0.09

Population, 95-99 yrs, % total 0.00 0.01 0.01 0.01 0.01 0.02 0.02

Population, 100+ yrs, % total 0.00 0.00 0.00 0.00 0.00 0.00 0.00
e/f = Fitch Solutions estimate/forecast. Source: World Bank, UN, Fitch Solutions

THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

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India Information Technology Report | Q2 2021

Information Technology Methodology


Industry Forecast Methodology

Fitch Solutions’ industry forecasts are generated using the best-practice techniques of time-series modelling and causal/
econometric modelling. The precise form of model we use varies from industry to industry, in each case being determined, as per
standard practice, by the prevailing features of the industry data being examined.

Common to our analysis of every industry is the use of vector autoregressions. They allow us to forecast a variable using more than
its own history as explanatory information. For example, when forecasting oil prices, we can include information about oil
consumption, supply and capacity.

When forecasting for some of our industry sub-component variables, however, using a variable's own history is often the most
desirable method of analysis. Such single-variable analysis is called univariate modelling. We use the most common and versatile
form of univariate models: the autoregressive moving average model (ARMA).

In some cases, ARMA techniques are inappropriate because there is insufficient historic data or data quality is poor. In such cases we
use either traditional decomposition methods or smoothing methods as a basis for analysis and forecasting.

We mainly use OLS estimators, and in order to avoid relying on subjective views and encourage the use of objective views, Fitch
Solutions uses a 'general-to-specific' method. We mainly use a linear model, but simple non-linear models, such as the log-linear
model, are used when necessary. During periods of 'industry shock' (for example, poor weather conditions impeding agricultural
output), dummy variables are used to determine the level of impact.

Effective forecasting depends on appropriately selected regression models. Fitch Solutions selects the best model according to
various different criteria and tests, including but not exclusive to:

• R2 tests explanatory power; adjusted R2 takes degree of freedom into account


• Testing the directional movement and magnitude of coefficients
• Hypothesis testing to ensure coefficients are significant (normally t-test and/or P-value)
• All results are assessed to alleviate issues related to auto-correlation and multi-collinearity

Fitch Solutions uses the selected best model to perform forecasting.

Human intervention plays a necessary and desirable role in all of Fitch Solutions' industry forecasting. Experience, expertise and
knowledge of industry data and trends ensure analysts spot structural breaks, anomalous data, turning points and seasonal features
where a purely mechanical forecasting process would not.

Sector-Specific Methodology

A number of criteria drive our forecasts for each IT variable.

IT forecasting is complicated due to the fragmented nature of the market, with little transparency of vendor data and low apparent
agreement between many sets of figures in terms of market definition, base and methodology. In addition, forecasts are affected by
consideration of a variety of internal and external political and economic factors.

Within best-practice techniques of time-series modelling, our quarterly updated forecasts are improved substantially by intimate
knowledge of the prevailing features of each local market.
THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

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India Information Technology Report | Q2 2021

Risk/Reward Index Methodology

Individual variables taken into account in creating each forecast include:

• Overall economic context, and GDP and demographic trends


• Underlying 'information society' trends
• Projected GDP share of industry
• Maturity of market structure
• Regulatory developments and government policies
• Developments in key client sectors such as telecommunications, banking and e-government
• Technological developments and diffusion rates
• Exogenous events

Estimates are calculated using our own macroeconomic and demographic forecasts.

Sources

Additional sources used in IT reports include national ministries and ICT regulatory bodies, national industry associations, and
international industry organisations such as the International Telecommunication Union (ITU), officially released company results
and figures, and international and national industry news agencies.

Fitch Solutions’ proprietary Risk/Reward Index (RRI) provides a comparative regional ranking system evaluating the ease of doing
business and the industry-specific opportunities and limitations for potential investors in a given market. The RRI system divides into
two distinct areas:

Rewards: Evaluation of sector's size and growth potential in each state, and also broader industry/state characteristics that may
inhibit its development. This is further broken down into two sub-categories:

Industry Rewards (an industry-specific category taking into account current industry size and growth forecasts, the openness of
market to new entrants and foreign investors, to provide an overall score for potential returns for investors).

Country Rewards (a country-specific category, factoring in favourable political and economic conditions for the industry).

Risks: Evaluation of industry-specific dangers and those emanating from the state's political/economic profile that call into
question the likelihood of anticipated returns being realised over the assessed time period. This is broken down into two sub
categories:

Industry Risks (an industry-specific category whose score covers potential operational risks to investors, regulatory issues inhibiting
the industry and the relative maturity of a market).

Country Risks (a country-specific category in which political and economic instability, unfavourable legislation and a poor overall
business environment are evaluated to provide an overall score).

We take a weighted average, combining industry and country risks, or industry and country rewards. These two results in turn
provide an overall Risk/Reward Score, which is used to create our regional ranking system for the risks and rewards of involvement
in a specific industry in a particular country.

For each category and sub-category, each state is scored out of 100 (100 being the best), with the overall Risk/Reward Score a
weighted average of the total score. As most of the countries and territories evaluated are considered by Fitch Solutions to be
THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

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India Information Technology Report | Q2 2021

'emerging markets', our score is revised on a quarterly basis. This ensures the score draws on the latest information and data across
our broad range of sources, and the expertise of our analysts.

Sector-Specific Methodology

In constructing these indices, the following indicators have been used. Almost all indicators are objectively based.

IT RISK/REWARD INDEX INDICATORS


Rationale

Rewards

Industry

IT market value, USDbn Denotes breadth of IT market. Large markets score higher than smaller ones.

Sector value growth, % y-o-y Denotes sector dynamism. Scores based on annual average growth over five-year forecast period.

Denotes spending boost provided by public sector, which can be a crucial determinant of sector
Government initiatives and spending
development.

Denotes maturity of market. A high proportion of hardware sales, compared to services/software,


Hardware, % of total sales
indicates that the overall IT market is immature.

Country

Urban-rural split Urbanisation is used as a proxy for development. Mainly rural states score lower.

GDP per capita, USD A high GDP per capita supports long-term industry prospects.

Overall score for Country Rewards is also affected by the coverage of the power transmission network across the state.

Risks

Industry

Markets with fair and enforced IP regulations score higher than those with endemic
Intellectual property (IP) laws
counterfeiting.

Subjective evaluation of official policy towards IT development, as enshrined in statute and tax
ICT policy
code.

Country

Score from Fitch Solutions' Country Risk Index (CRI). It evaluates the vulnerability to external
Short-term external risk
shock, which is the principal cause of economic crises. Such a crisis would cut investment.

Score from CRI, to denote risk of currency crisis and stability of banking sector. The former would
Short-term financial risk
hit revenues in hard currency, while the latter would curtail investment funding.

Trade bureaucracy Score from CRI to denote ease of trading with the state.

Score from CRI denotes the strength of legal institutions in each state - security of investment can
Legal framework
be a key risk in some emerging markets.

Bureaucracy Score from CRI denotes ease of conducting business in the state.

Score from CRI denotes the risk of additional illegal costs/possibility of opacity in tendering/
Corruption
business operations affecting companies' ability to compete.

Source: Fitch Solutions

THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

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Weighting

Given the number of indicators/datasets used, it would be wholly inappropriate to give all sub-components equal weight. The
following weighting has been adopted:

WEIGHTING OF COMPONENTS
Component Weighting, %

Rewards 70, of which

- Industry 65

- Country 35

Risks 30, of which

- Industry 40

- Country 60

Source: Fitch Solutions

THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

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