India's revenue from software products is forecast to rise to between US$9.5 billion to $12 billion by 2015, up from $1.4 billion for the most recent fiscal year that ended March 31, according to a study released Monday by the National Association of Software and Service Companies (Nasscom).
India's software industry mainly draws its revenue from services, with companies such as Tata Consultancy Services, Infosys Technologies and Wipro leading the pack.
A number of Indian companies, particularly start-ups, are now focused on products or creating intellectual property for markets such as mobile communications, the financial sector and other enterprise applications.
Indian software companies have also emerged as acquisition targets for multinational companies. For example, Oracle acquired a majority stake in an Indian financial software company, i-flex solutions, in 2005. EMC announced in Feb. 2007 that it would acquire Valyd Software, an enterprise data security vendor in Hyderabad.
The momentum is picking up for product companies in India, according to Nasscom. Of the 371 software companies set up since 2001, two-thirds were formed in the past three years, Nasscom said. About 100 companies started their operations in 2007 alone, it added.
Venture capital funding is supporting the growth of the software industry, according to the study, conducted by management consulting firm Zinnov, which was commissioned by Nasscom.
About $80 billion in private equity and venture funding, both international and domestic, is expected to be invested in India in next four to five years, said Sudhir Sethi, chairman and managing director of IDG Ventures India. About $20 billion of that money is likely to be invested in hardware and software companies, he added.
Angel funds and early-stage venture capitalists are more interested in investing in Indian start-ups than a year ago, said Sanjay Anandaram, co-founder of JumpStartUp venture fund.
Inadequate early stage and angel funding had been a major problem for Indian product software startups, Anandaram said. Companies that are of interest to venture capitalists are those with business plans focused on the Indian market first, he added.
Venture capital funds investing in the software products segment have grown from $76 million in 2005 to $156 million in 2007, according to Nasscom.