The IT services market in India is set to reach US$9.5 billion in 2011, making it the third-largest domestic market in the Asia-Pacific region, according to a report by Gartner.
In a Monday statement, the research firm stated that the forecasted revenue is an 18 percent increase over 2010's US$7.6 billion. The market is expected to grow to US$15 billion by 2014, it added.
Gartner noted that while India's IT services market was small compared to the that of the United States and United Kingdom, market conditions are buoyant and it has the potential to expand further with "as a service"-type offerings.
"India's domestic IT services are a large emerging market in high growth mode," said Arup Roy, principal research analyst at Gartner. "Coupled with other factors such as openness to adopt technology and a maturing sourcing approach, it represents an attractive target potential for providers of all sizes."
According to Roy, the top 10 providers have a cumulative market share of 42 percent, indicating a highly fragmented market served by several small players and no large, dominant player. Yet, this scenario varies widely by verticals.
At the moment, four industry verticals account for 85 percent of IT spending: banking, financial services and insurance, telecommunications, manufacturing and government. Other industry verticals offer good growth opportunities as they begin opening up and engaging with external service providers, the analyst firm noted.
The Indian market, it noted, consists of a good mix of local providers and multinational corporation (MNC) players--six of the top 10 providers are Indian while foreign companies make up the other four.
India's growth fundamentals are on solid footing and could support sustainable growth and development in the future, Gartner added, citing the country's high GDP growth rate as key to its sustained IT services growth potential. In addition, government infrastructure projects will strongly drive IT, in conjunction with the expansion of the financial services and manufacturing verticals.
Roy advised new market entrants to be careful about the opportunities they pursue, given that the IT services clients tend to focus on cost rather than value for money. Another area to be wary about was scoop creep, he said.
"There is still room for new players and the barrier to entry is quite low," said Roy. "Hence, [the Indian] market presents an immense opportunity for any large credible player to consolidate its position and grab market share in a big way.
"The cost of labor and infrastructure in tier 1 cities had been rising but it still is one of the lowest in the world."
Roy added that companies that look to invest in India should "develop a realistic target of their revenue and growth potential in the medium to long term".