MUMBAI: There is growing interest among leading global outsourcing players to grow by buying or being bought as information technology services providers see profits falling in the near term due to commoditisation of basic services.

Experts said a perfect storm is brewing as emerging technologies like cloud computing disrupts traditional business models. That, along with reducing technology budgets of large corporations and stiff competition among existing players, could push the industry to consider big-bang acquisitions.

ISG, the world's largest outsourcing advisory, told ET it was hearing increased chatter about mergers as service providers seek new ways to grow. The advisory believes that 30-40 % of the current Top 20 service providers may exit the market through consolidation.

The main precursor to consolidation is a decline in new client bookings, a situation that several industry players are currently facing. "We see a raft of organisations that are struggling in the new-scope bookings. Consolidation is happening at different paces in different places but it's something that we expect to see," said John Keppel, an executive board member at ISG.

With nearly half of all outsourced technology services being done from India, the country will play a key role in any consolidation in the industry. Keppel said the Chinese market is a case in point. Nearly half the top-end has seen consolidation over the past two years and in the last nine months five Chinese IT services firms have bulked up and are now going private.

"Absolutely, we see providers talking about it. In fact, we've worked on numerous projects around consolidation ," Peter Bendor-Samuel , CEO of advisory Everest Research. Indian IT Companies Can Take Advantage of M&As

He declined to give further details about the projects as he'd signed non-disclosure agreements. "I don't expect it to all happen in a year. I think I'd give it a five-year timeline." In India, experts say acquisitions may be necessary if the top five Indian players—TCS , Infosys, Wipro, HCL Technologies and Cognizant—need to maintain their growth levels.

"I do not believe today's (Indian) providers can get from today's commodity needs to tomorrow's emerging needs by making the occasional niche purchase to fill a few competency gaps—it's just too slow and painful a process. The only genuine strategy is to go for the 'big bang buy' , the game changer that will force the shift to Sourcing 2.0," wrote Phil Fersht, founder of advisory firm HfS in a recent blog post.

The advisories point out that though Indian plays have been cautious in the past, when the industry consolidates, the Indian IT firms will be in pole position to take advantage. "They have strong profitability and good valuations so their stock is worth more than the multinationals ; they've got the financial wherewithal. And many of the attractive acquisitions are Indian-owned so they have the advantage of understanding how to navigate the Indian regulatory environment ," Everest's Bendor-Samuel said.

TCS has cash reserves of about $1.2 billion (Rs 7,400 crore) while for Infosys' stood at $4.34 billion (Rs 26,900 crore). Wipro has $1.6 billion available, while HCL had $760 million to spend. The analysts say mid-tier Indian firms could be bought out by mid-tier US firms and that it was possible for an Indian firm to buy out a multinational.

Acquisitions to expand into the software product space are also possible. "The Indian companies are in a position where they are considering the software product plays. So then an Amdocs, or say insurance solutions provider in the UK or Singapore (might be targets). That's the space you should expect to see it in—in new business lines that are part of their strategy," said Sid Pai, president for the Asia-Pacific region at ISG.