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Indian IT firms should seek big acquisitions, Gartner says

If Indian companies want to join the world's top IT services companies, they must make sizable acquisitions, the analyst group says.

Indian outsourcing companies need to make big acquisitions if they are to challenge the existing world order of global IT services companies, analyst firm Gartner says.

The top six India players: Satyam, Wipro, Infosys, TCS, Cognizant and HCL--collectively referred to as "Switch"--accounted for 1.9 percent of the total $672 billion IT services market in 2006. That compares with 0.5 percent in 2001, according to figures from Gartner.

Gartner said these companies are making inroads into "key" clients, often beginning with smaller, project-based work. Despite their smaller size, Gartner added, they are making "significant strides" to challenge the market share leaders' positions, by showing strong annual revenue growth far exceeding the rest of the market.

The average annual growth rate for the Indian companies was 42.4 percent in 2006, compared with a 4.3 percent growth of the market leader during the same period, the analyst group said.

Partha Iyengar, a Gartner vice president, said companies are re-evaluating their preferred vendor rankings to include Indian companies. "If the India-centric IT service providers continue to grow at the current pace, at least two companies will be a part of the top 10 companies globally," he said in a statement.

But Gartner said it will still take a number of years for Indian companies to challenge the top service providers or appear among the top three market share leaders--unless they make a major acquisition. And the analyst group said that if market share leadership in the top three is a goal, these companies would need to pursue acquisitions of "considerable size."

Steve Ranger of reported from London.