Understanding Indian IT services.
How export dollars, big contracts, and millions of employees create wealth.
Your nephew just got a job at a big IT company. The family is proud, but what does the company actually do? And how does it make money for investors?
Indian IT companies are the world's technology back-office. They manage complex computer systems for global giants, who pay in dollars while the company pays its staff in rupees. This currency difference is a key advantage.
Think of an IT company like a large wedding caterer. Total Contract Value (TCV) is the total value of all wedding bookings secured for the next season. It is not cash in hand today, but guaranteed future revenue. But there is a catch: if the caterer's cooks and waiters quit frequently (high attrition), they have to hire new ones at much higher costs, which hurts profits. Since smart minds are the main resource in IT, high attrition drains earnings.
Not all clients are equal. Many firms are heavily dependent on the Banking and Financial Services (BFSI) sector. If global banks cut their spending due to a slowdown, this concentration becomes a risk.
Why this matters
When you invest in an IT company, you are investing in a mega-contractor. Look beyond temporary currency ups and downs. Is the company winning larger future bookings (TCV)? Are their key client sectors, like banking, healthy enough to keep spending? That is where the real value lies.
Indian IT earns dollars by managing tech systems for global giants, paying costs in rupees.
Watch Total Contract Value (TCV) to spot future revenue, not just past results.
Staff is the main cost; high attrition (employees leaving) drains profits.
Investors often mistake short-term project cycles for permanent shifts in the industry's fortune.