Going by the recent trends experts feel that the IT spending by companies in the United States and Europe is expected to benefit the Indian IT services companies, both mid and large-tier companies, though at a slow pace. Experts with whom THE WEEK spoke to feel that many large banks in the US have revived their digital strategies in order to stay competitive. But these banks may now need to have a strong fintech approach and in order to do that they will have to increase their digital spending. IT services companies that have a strong focus towards financial clients especially the banks, will benefit from it. Moreover, the rupee depreciation is expected to help Indian IT services companies during the present and in the next one or two quarters.
“Banks in the US are now deploying speech and voice recognition software and have been deploying chat bots and other machine learning interfaces that will require them to change their digital strategies. Besides banking and financial sector, retail and healthcare segment will also see a lot of digital traction and that will bring in new business for the Indian IT services companies. Digital strategies will be the game changer for Indian IT services companies. For instance, in the case of TCS, which announced its quarterly results recently, the digital segment stood at 25 per cent of revenue and grew 6.7 per cent QoQ (Quarter-on-Quarter) and 45.5 per cent YoY (Year-on-Year). The digital revenue of TCS crossed $5 billion and has grown 2.5 times in the past three years,” Amit Chandra, IT analyst at Mumbai-based HDFC Securities told THE WEEK. This expert also feels that rupee depreciation will help companies over the next few quarters. “For TCS the growth trajectory is expected to remain strong and the margin is expected to tend towards the target band as currency tailwinds persist,” added Chandra.
Kris Lakshmikanth, CEO and founder of the recruitment firm Head Hunters India Limited feels that currently, there is a lot of churn going on in the IT sector as more and more companies are wanting to go digital. “More work has to be done onsite by the Indian IT services companies as digital transformation requires a lot of onsite work. As a result, the margins are being squeezed. This is witnessed in the case of TCS and Infosys who have reported lower margins for the latest quarter. There has also been the entry of new IT companies in the market who compete with our IT companies for the same digital transformation work and these companies are able to offer tailor made solutions at a lower cost. Also BFSI segment has slowed down for Infosys since a number of their clients have inshored their requirements, in other words, they have taken back the work from Infosys to their own captive centres in India, Philippines etc.” said Lakshmikanth.
Lakshmikanth observed that there are certain portions of the BFSI segment that are growing such as the investment banking piece, stock trading piece and derivatives. But these segments require more and more technology inputs. “The banks are spending more of their money here. This is the reason why some companies are doing well. For instance, TCS has shown growth in BFSI but Infosys has shown decline. Overall, I would estimate that the BFSI segment, the largest segment for IT companies, will grow albeit at a lower pace. On the other hand, Europe is a relatively virgin market for Indian IT services companies and they are now targeting this geography. Currently, only 20 per cent of the turnover of IT companies is coming from Europe. The IT companies are endeavouring to increase it to 25 per cent in the near future. Another geographical segment companies are targeting is India, Far East, Middle East and Africa. Overall the IT sector is growing but at a slower pace. This year I expect the IT sector growth to be around 5 to 6 per cent,” added Lakshmikanth.
Similarly, another expert Alok Shende of Ascentius Consulting Mumbai feels that it will take some time before one can see a real revival in the Indian IT sector as things have started changing recently and the financial services industry is seeing some signs of an increase in IT spends. “The huge shift in the digital strategy of the financial services sector in the US will not be a story for one or two quarters but it will be their road map for many more years to come. For instance, a few banks in the US had run blockchain pilots and have seen good results out of them. This may prompt them to go for larger blockchain projects and in turn they will require the services of the Indian IT companies. All this digitisation by banks have been driven by increased competition and hence many are going to change their digital architecture in the long run,” remarked Shende.