Salaries in Indian IT growing too fast, says Pramod Haque

A private equity investor conference is incomplete without Pramod Haque. He is the managing partner at Norwest Venture Partners, a US-based venture capital fund, and has invested in more than 60 companies, producing nearly $30 billion in exit sales value to date.

The firms backed by him are either publicly traded or bought by established names. Within minutes of finishing his talk at ITC Gardenia in Bangalore, he was surrounded by entrepreneurs seeking capital, consultants looking to find buyers for clients and even head-hunters. Some had projects in solar energy or power generation that needed capital injection while others had businesses that had products with intellectual property.

[caption id=“attachment_31384” align=“alignleft” width=“380” caption=“Salaries in the Indian IT sector are growing faster than other markets. Reuters”] [/caption]

Haque spoke to Firstpost on the sidelines of the ‘Bengaluru Investor Forum 2011:

On Indian IT sector: We expect Indian companies to innovate and create intellectual property (IP) for services. This is to make sure that the people they employ are more productive. Indian IT services companies face significant wage inflation. Salaries are growing faster than other markets. A lot of Indian companies would be under pressure to deploy technologies that enhance their productivity and automate processes. We are funding companies in US that are developing intellectual property for the (IT) services space.

(In his conversation earlier with Raj Kondur of Ascent Capital and Shashank Singh, managing partner at Apax Partners, Haque said that India gets only $100 billion of over over $1 trillion spent on offshoring. He felt that cloud computing will emerge as a challenge for Indian IT companies)

[caption id=“attachment_31382” align=“alignleft” width=“150” caption=“Screen grab from Norwest Venture Partner”] [/caption]

On Innovation: The next set of differentiation for Indian companies is expected to be data analytics or ‘Big Data’. This is a huge opportunity. There is a need for companies to do predictive analysis. The impact would be like what enterprise resource planning (or ERP) did to the whole computer industry which caused Indian IT services to grow. It is fair to say that the ERP wave is over. Almost all Fortune 2000 companies have ERP systems installed. The next wave of differentiators will come from analysing big data. (ERP is a business management system that connects all areas of a business - planning, manufacturing, sales, and marketing - thorough one integrated IT system).

(Haque highlighted that cloud computing could emerge as a challenge to Indian IT companies. Wage inflation could mean Indian IT services have to differentiate. Big Data is emerging as the next big thing. Read more here

On mergers and private equity exits: Over the next five years, we see mergers and acquisitions (M&A) activity accelerating in India. Larger companies could acquire smaller companies as the Indian industry is reaching a mature stage. We expect smaller companies to get absorbed by larger international companies. Private equity investors would play a role to enable a small company to get rolled up into a large company through M&A.

(Haque said while speaking earlier that many internet companies are likely to use the US Nasdaq actively for private equity exits. He said that any e-commerce initiative launched in the US is replicated in China two years later and then three years later in India. US investors understand that India and China are large consumer markets and that growth would be high. India’s Makemytrip.com - a ticketing and travel portal - was one of the most successful IPOs in the US recently.)