IT firms under pressure as big ticket deals ease

Bengaluru : Indian IT services firms may see the tap of mega cost takeout deals drying up in coming quarters as indicated in the deal bookings for the third quarter ended December.Experts are of the opinion that this is not necessarily a bad news for the Indian IT industry as clients may start investing in digital deals that come with better margins. Global IT industry has gone through a slowdown in 2023 owing to less flow of digital deals from : enterprises.

“In this environment, we may not see many mega cost takeout deals (coming to the market). It is not necessarily a bad thing as it may be an indication that clients are ready to invest in new areas,” Pareekh Jain, an IT outsourcing advisor & Founder of Pareekh Consulting, told BizzBuzz.

He also added that lack of wins in mega deal space had pulled down the large deal pipeline during the third quarter of big firms.

In the December quarter, deal bookings of most IT firms came down. For instance, market leader Tata Consultancy Services (TCS) saw its bookings coming down to $8.1 billion in Q3 of FY24 from $11.2 billion reported in the second quarter. Infosys’ large deal wins fell to $3.2 billion from $7.7 billion bagged in the second quarter of ongoing financial year.

Wipro’s large deal wins came down to $0.9 billion in Q3 from $1.3 billion reported in the second quarter. Similarly, HCL Tech’s new deal wins were at $1.927 billion in Q3 from $3.96 billion reported in the previous quarter.

However, these large deals won in recent quarters have not translated into revenue as clients hold back project work.

In 2024, many of the large deals signed earlier are likely to ramp up as sentiment improves. “With client budgets reviving, key markets and verticals looking up; the deal win momentum is expected to hold well,” Axis Securities wrote in a note.

Some companies have also indicated better days ahead as consulting part of the business shows early signs of recovery. Usually growth in consulting business is seen as a precursor to growth revival in digital deals space.

“We are starting to see early signs of growth in consulting, as demonstrated by the double-digit growth in order bookingsin our Capco business. If market improves tomorrow, this business will be the first to posthigh growth,” Thierry Delaporte, CEO and MD of Wipro, had said during the Q3 pressconference.

In this environment, we may not see many mega cost takeout deals coming to the market. It is not necessarily a bad thing as it may be an indication that clients are ready to invest in new areas

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