What started off as a promising year for the Indian tech sector is now beginning to witness some black clouds hovering on the growth horizon. On the demand side, the expected release of pent-up demand is not reaching the volumes anticipated because of a very simple reason. During a recessionary period, most large corporations keep the focus on ?lights on? support investments and the only discretionary projects that get the nod are those that are expected to provide returns in less than a year.

In the post recession period, larger projects find favour again which is what was anticipated from Western clients in FY 12, However, the continuing scare of a second wave of recession has limited the size of projects being initiated in recent times. Added to this, the spectre of unemployment resulting in extraordinary tightening of immigration controls and visa clampdowns in key customer countries like the US and UK has made it difficult for significant projects to be quickly staffed and delayed the on-site consulting work that typically precedes the commencement of major offshore work. This may explain the concerns about the sector that are beginning to be stated although new demand continues to be there in both the West and the emerging markets. This is turning out to be a year where growth will be substantially higher than the past two years but will not yet see a return to the glory years of the past!

One segment that holds much promise is the area of enterprise applications. While large custom projects may not be initiated in a year of economic uncertainty, the sharp increases in corporate profits for major companies in sectors like financial services, utilities, retail and manufacturing have encouraged them to enhance their capabilities in anticipating and managing customer demand. This is seeing increased spending on CRM and Business Intelligence solutions and the market for package upgrades to new versions with the latest capabilities is likely to soar in the coming months, providing opportunities for package vendors and implementation service providers. The high demand areas predicted by leaders like SAP include on-demand applications on the cloud, high performance analytics and on-device mobile apps.

While these three hot spots are expected to contribute to over 20% of the revenues of the large ERP vendors by 2015, the increasing focus on dynamic and collaborative mobile applications is making the ERP environment extremely fluid. Most recent industry research points to mobile applications being a major focus area for CIOs in 2011 and SAP has been an early mover with its acquisition of Sybase, giving a mobile commerce ready edge to its offerings. The new Sybase-SAP mobile platform releases will also facilitate applications partners to build new applications for the mobile platforms, spawning a whole new generation of software through a rapidly growing developer community. The industry can expect to see a unique wave of partnering as well as new means for accessing corporate ERP applications through mobile devices. These new means of access combined with the rapid development of on-demand and software as service capabilities will enable both large and smaller firms to discover a new agility in their enterprise software with multiple ways to consume and deliver information.

Any new wave that provides opportunity for rapid growth can also create a new set of M&A transactions and with the organic growth options limited in a rather soft environment, one can expect to see a wave of acquisitions in the sector in the coming 18 to 24 months. Recent significant moves like the Genpact acquisition of Headstrong, iGate of Patni, HP of EDS and Dell of Perot have turned the conversation away from one company whose moves to bulk up its own size and then sell to an Indian firm may see some copycat transactions occur in the enterprise space. The story of UK based Axon, which did four successive transactions to build a position of credible size in the SAP space in the US, before selling to HCL is an interesting one and could well see repetition in the software marketplace as the quest for scale drives more such transactions.

A recent analyst report that has downgraded the industry itself and raised questions about the ability to sustain a growth momentum of 20% annually brings up a very genuine concern which is the oft repeated refrain of non-linear growth. The ability to bring products and templatised solutions to the market to delink revenue from manpower growth will call for significant investments and a willingness to sacrifice short term revenue predictability in the interests of a medium term change in the revenue and profit model. All serious players among the top 30 or so listed firms in the Indian outsourcing industry are aware of this and the quest for vertical solutions is very much on. How soon can this be achieved and how effective will the transformation be are the questions that will determine the future of not just the specific firms but the industry itself in the days to come.

The writer is vice-chairman & CEO of Zensar Technologies and a member of Nasscom?s Chairmen?s Council