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Recession fears hit new digital projects

Several global clients tightening their IT spend on new digital projects amid recession fears; IT firms’ sales teams already witnessing a series of cancellations of business meetings

Recession fears hit new digital projects

Bengaluru: The fear of recession is making clients nervous across the world, which is leading to delay in committing investment for new digital projects. Sources in the IT industry said that the sales team is coming up of instances of cancelled meetings, delay in decision-making and other such phenomena that reflect less conviction among clients.

"In June, sales team is coming up with instances of cancelled meeting with clients, which was not the case in May. We also see some physical events planned earlier getting cancelled. So, companies are getting jittery over a possible recession now," said an IT industry insider.

Though spend has not been impacted so far despite slowdown fears and monetary tightening, clients are tightening their purse towards new digital projects which are discretionary in nature, he added.

According to industry experts, June is the month which seems to have changed the sentiment on overall growth prospects of the world economy.

"After 75 basis points hike by US Federal Reserve and the hawkish statement from the chairman, the sentiment has moved to one of cautiousness from earlier optimism. This is reflecting on the spend decisions now," said Pareekh Jain of Pareekh Consulting.

"IT companies are also taking up cost optimisation measures like tighter scrutiny on travel, arranging events and marketing spend," he said adding that it's not only the startups that are taking cost saving measures in India, but also established companies are also taking up that route now.

According to global consulting firm Gartner, spend in IT services segment is likely to grow by 6.8 per cent in 2022 as compared to 10.6 per cent in 2021. Nomura in a recent note said the US economy would face mild recession starting in Q4 2022, reflecting tighter financial conditions, a negative sentiment shock for consumers, worsening energy and food supply disruptions and weaker global growth prospects.

It also said that a mild recession in the US economy would have spill over impact on the world economy including India.

Meanwhile, management of Indian IT firms are yet to say anything on the possible slowdown though market leader Tata Consultancy Services (TCS) has flagged up concerns with regard to headwinds on macroeconomy.

In the investors' meet, Infosys' management, however, has said that demand environment remained robust with no clients going back on spending commitments. Investors will watch for the June quarter results commentary to a gauge a sense of demand environment for coming quarters, analysts said.

Debasis Mohapatra
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