The India IT services market revenue is likely to grow by 18% to $9.5bn in 2011 from $7.6bn in 2010, according to IT research firm Gartner.
The domestic IT services market in India is ranked third in Asia/Pacific, according to the research firm, which forecasted the market to grow to $15bn by the end of 2014.
Gartner principal research analyst Arup Roy said coupled with other factors such as openness to adopt technology, and a maturing sourcing approach, the India IT services market represents an attractive target potential for providers of all sizes.
The report also indicated a highly fragmented market served by many small players with no large, dominant, well-entrenched player, as only 42% share of the market share has been occupied by the top 10 providers.
Because of the buoyant market conditions, the India market offers a growth opportunity to the service providers though it being quite small market as compared to the US and the UK markets.
"With a historic focus on cost, rather than on value for money, of services, as well as a propensity for scope creep in Indian services deals, new market entrants must be careful about the opportunities they target," Roy said.
"These providers should consider providing as-a-service/pay-as-you-go offerings to counter some of these market challenges," he added.
"There is still room for new players, and the barrier to entry is quite low. Hence, this market presents an immense opportunity for any large credible player to consolidate its position and grab market share in a big way.
"In the recent past, the cost of labor and infrastructure in Tier 1 cities has been rising, but it still is one of the lowest in the world. It also varies widely by region, and in some regions, providers can offer extremely competitive rates."
The IT sector will a good growth due to government infrastructure projects and expansion of the financial services and manufacturing subsectors, the report said.
Four industry verticals that currently comprises of 85% of all IT spending are banking, financial services and insurance; telecommunications; manufacturing; and government.
The share of local providers and multinational corporation (MNC) providers in India is almost the same as six of the top 10 providers are Indian occupies 22.3% market share and four are MNC providers comprising of 19.7% market share.
"India domestic market presents a high growth opportunity at a good critical mass for a broader group of mainstream global providers and small to midsize providers to start competing in the Indian domestic market," Roy said.
"Companies who are planning to invest in India to target the domestic market should develop a realistic target of their revenue and growth potential in the medium to long term."
