Half of Indian IT cos’ biz may hit slow lane

- Many IT cos have links with US banks

- More clarity in Q4 commentary of cos

- US banks cautious in spending now

- Credit Suisse crisis hits sentiment in EU

- TCS, Infy have exposure to US regional banks

Bengaluru: Indian IT services companies are facing slowdown risks in more than 50 per cent of their portfolio amid ongoing banking crisis and recession fears. Experts are of the view that BFSI (banking, financial services and insurance) and hi-tech verticals are witnessing potential slowdown in spend by clients in coming quarters.

“Indian IT services players are facing potential slowdown risks in half of their total portfolios. Because BFSI and hi-tech are the two verticals with more than 50 per cent of revenue share. So, unless the environment improves, these two verticals may see dip in spend. Investors will listen to the management commentary on these two verticals post the fourth quarter results,” Pareekh Jain, an IT outsourcing advisor & Founder of Pareekh Consulting told the Bizz Buzz.

After the fall of Silicon Valley Bank and fears of stability in other regional banks, US-based banks are likely to be cautious in spending. Especially, small regional banks will hold back spend till the crisis is over. Also, merger of Credit Suisse with Swiss-banking major UBS has created a subdued sentiment in the European banking system. German lender Deutsche Bank’s share price plunge has aggravated this perception.

With companies like TCS & Infosys having the highest exposure to regional banks in the US, investors will keenly watch the commentary of management about deal pipeline in the BFSI vertical.

Similarly, hi-tech is another vertical where fall in deals is slowly creeping in since the third quarter of FY23. Accenture’s growth in the hi-tech vertical remained flat, indicating digital deals are hard to come by in the present environment.

“In general, we are seeing a trend toward these larger deals and we talked about this in the last couple of quarters - we are seeing less of the smaller deals in S&C (strategy and consulting) to some extent, SI (system integration), particularly in North America, where we are seeing more caution. North America had record sales this quarter. But in areas tending towards the bigger transformational deals, not the smaller S&C and to some extent, SI deals,” Julie Sweet, CEO of Accenture has said post its second quarter earnings call.

ICICI Securities in a note has pointed out that Indian IT companies may see delay in decision-making and deal conversion in coming quarters.

“Client focus on cost-optimisation deals bodes well for Indian IT companies given their expertise in large cost-optimisation deals. There could be delay in deal signings or conversion of deals to revenue in next couple of quarters in our view,” ICICI Securities wrote.

BFSI and hi-tech are the two verticals with more than 50 per cent of revenue share. So, unless the environment improves, these two verticals may see dip in spend. Investors will listen to the management commentary on these two verticals post the fourth quarter results

- Pareekh Jain, Founder of Pareekh Consulting, tells Bizz Buzz