India’s IT Sector Set to Lead Global ER&D Growth, Says PL Capital

Mumbai, 20 May – India’s IT services industry is fast emerging as a global powerhouse in outsourced engineering research and development (ER&D), driven by rapid digitisation across automotive, software, and healthcare sectors. Global outsourced ER&D spend is projected to reach USD 660 billion by 2030, and Indian engineering service providers (ESPs) are expected to clock a robust 21% compound annual growth rate (CAGR) between 2023 and 2030, according to PL Capital’s latest IT sector outlook.

With original equipment manufacturers (OEMs) racing to adopt electric vehicles, software-defined architectures, and digital manufacturing, outsourcing is set to become a critical lever for innovation delivery. India’s combination of engineering talent, cost advantage, and vertical depth is giving it a definitive edge.

“As product complexity rises and digital adoption accelerates, Indian ESPs are well positioned to expand their share of global ER&D contracts. A cyclical recovery in discretionary spending is expected from the second half of FY26,” said PL Capital analysts.

While global automotive clients have temporarily pulled back on budgets due to tariff and trade uncertainties, long-term growth remains intact—especially for firms offering full-stack capabilities across embedded software, middleware, and cloud-connected systems.

PL Capital Recommends

• KPIT Technologies – HOLD, Target Price: ₹1,410
  A pure-play automotive ER&D company with strong middleware capabilities and a strategic JV with ZF. Early bets on China also strengthen its growth potential.
• L&T Technology Services (LTTS) – HOLD, Target Price: ₹4,360
  Diversified vertical exposure and recent acquisition of Intelliswift improve scale. However, near-term growth in the mobility segment may be tempered by global uncertainties.
• Tata Elxsi – SELL, Target Price: ₹4,950
  While well-regarded for embedded and design capabilities, growth moderation in media, communications, and healthcare may limit valuation upside.
• Tata Technologies – SELL, Target Price: ₹590
  Strong EV and turnkey engineering credentials, but limited visibility in non-automotive segments raises concerns over long-term revenue sustainability.

India’s Strategic Edge

India accounted for USD 50.6 billion of global ER&D outsourcing in 2022, split nearly evenly between Global Capability Centres (GCCs) and ESPs. That number is forecast to rise to over USD 85 billion by 2026, with ESPs expected to grow faster owing to their ability to serve multiple geographies and industries.

The ongoing shift to digital engineering is reshaping R&D globally. It’s expected to account for 65% of total ER&D spend by 2030, up from 45% in 2023. Solutions involving digital twins, AI-led platforms, IoT, and OTA software updates are already becoming core components of outsourced engineering contracts—and Indian firms are scaling rapidly in these areas.

Outsourced ER&D’s share in global R&D budgets is also projected to rise from 15% to 24% over the same period, reinforcing the growing dependence on strategic third-party partners.

Valuations and Market Positioning

Indian ER&D companies continue to trade at a premium to global peers, reflecting superior growth, execution capability, and domain relevance. Although current valuations remain below historical highs, they hover around long-term averages, suggesting room for selective re-rating as macro conditions stabilise.

Firms with end-to-end capabilities, embedded software stacks, and exposure to high-growth verticals such as EVs and telecom are expected to consolidate their leadership.

Bottomline

India’s IT and engineering services sector stands at a critical inflection point. With the world turning to digital-first product development and leaner R&D models, Indian ER&D specialists are poised to drive the next decade of global innovation. Those with domain depth, digital scale, and operational agility will be the biggest beneficiaries as global clients resume long-term tech investments.

Read the full report here