BofAML Sees SaaS Startups Making India A $50-Billion Global Software Hub

Software is a fraction of India’s $176-billion information technology industry. Much like offshoring, Bank of America Merrill Lynch sees the nation turning into a global software hub.

The Indian software industry is expected to grow fivefold from $8 billion to a $50-billion market, BofAML said in a report, without giving a time frame.

The growth will be driven by driven by software-as-a-service or online licensing of subscription of standardised applications rather than installing them on individual machines.

Besides Tata Consultancy Services Ltd., Infosys Ltd., and HCL Technologies Ltd., BofAML says Freshworks, Druva Software and Capillary Technologies “appear fertile” to contribute to Indian software industry growth along with small names like Affle India Ltd. and Oracle Financial Services Software Ltd. That will be aided by the availability of talent and venture capital, it said.

India's IT sector largely provides offshoring, technology consulting and back-end services that contribute 18 percent to the global $982-billion industry, according to the report. But its share in the $500-billion pure-play software industry, dominated by the likes of Microsoft Corp., Oracle Corp. and International Business Machines Corp., is just 2 percent.

BofAML expects the handful of startups to be top contributors to India’s growth in software sector through SaaS. According to the report:

• Freshworks, which specialises in customer relationship management and human capital management, is one of the largest private companies considered an “early champion” in software, having crossed the milestone of being valued over $1 billion and annual revenue of $100 million, according to the report.
• Zoho is one of the largest cloud-based CRM providers with estimated revenues of revenues $350-400 million.
• Druva Software is another $100-million revenue company with presence in emerging markets.
• Capillary Technologies, with focus on customer loyalty platforms, has been among the fastest growing SaaS startups in the past three years.

IT Majors Chase Growth

Software products and platforms were the top-most priority for chief executive officers in IT services for enhancing digital capabilities, according to industry lobby Nasscom’s survey earlier in the year.

After HCL Technologies bought IBM’s mature software products in December, it now has a significant exposure to the software sector with the company expecting 15 percent of its revenue from software compared with 8 percent earlier.

TCS, the world’s third-largest IT services provider, already has platforms like core-banking software BaNCS and insurance and pension management software Diligenta, which played a critical role in accelerating the company’s growth, according to BofAML.

Capital And Talent

India has seen a 70 percent increase in number of venture capital funds with active investments in the past five years, according to the report. That drove a 15-17 percent annualised growth in the number of software startups with more than $1.6-billion investment in SaaS companies.

There is also a talent pool that’s fast maturing and could be another important lever given that global software giants have 5-25 percent of their workforce in the country, BofAML wrote. About 1,250 global corporates having technology centres in India aids in development of talent, it said.