BFSI tech spend bodes well for Indian IT cos
Large IT firms expected to bag large cost savings projects as banking, finance and insurance vertical doing good
- Overall performance of BFSI vertical expected to be good
- Top-5 banks except one have guided for higher tech spend in 2023
- Slowdown in mortgage, investment banking segments
- But other segments in BFSI witnessing good growth
- Large IT firms big beneficiaries of cost takeout deals
Bengaluru: Banking, financial services & insurance (BFSI) vertical is likely to perform well in the coming quarters with several cost takeout deals coming in the way of Indian IT services players.
Despite weak demand in mortgage and investment banking segments, growth outlook for BFSI vertical remains sound. Industry experts said large IT firms are expected to be the major beneficiaries of BFSI vertical doing good as they are more likely to bag the large cost savings projects.
"Overall performance of BFSI vertical is expected to be good despite the macroeconomic concerns. Reports suggest that the top five banks of the US except the Goldman Sachs are going to spend more in 2023. This augurs well for Indian service providers. The market has also seen bagging of large cost takeout deals happening in the BFSI space with TCS bagging the Phoenix group deal," Pareekh Jain, an IT outsourcing advisor & Founder of Pareekh Consulting, told Bizz Buzz.
On Wednesday, Tata Consultancy Services (TCS) bagged a multi-year outsourcing contract from UK's largest long-term savings and retirement business provider, Phoenix Group worth around $720 million. This is the reflection of enterprises' eagerness to save cost through outsourcing IT work.
In the third quarter, most IT services companies have seen some growth moderation in BFSI vertical with strains seen in mortgage and investment banking segments. But management of many firms have said things would improve as clients seek ways to improve efficiency by saving costs.
"While the seasonal aspect should reverse in the next quarter (January-March), the macroeconomic uncertainties are likely to result in a more balanced year in 2023, after two years of strong growth. For now, we see a client caution translating into greater focus on cost optimization," Rajesh Gopinathan, CEO of TCS has told analysts in the post results analyst call.
BFSI is the most important vertical for large and many mid-tier IT services companies. Around 30 per cent of the revenues come from the financial services vertical for most Indian IT firms. Experts, therefore, noted that sound performance in the financial services sector would support revenue growth in the next financial year, when demand is likely to be moderated.
However, they noted that large IT firms would benefit more from such growth in BFSI vertical than mid-tier and small firms as the nature of deals are inclined towards cost takeout deals amid slowdown concerns.
"Clients prefer big firms for large cost takeout deals than mid-tier companies. So, the benefits of such changing nature of deals will favour large firms more. Spend in digital space is also slowing down within BFSI vertical, which is not good news for mid-tier firms," said Jain.
Reports suggest that the top five banks of the US except the Goldman Sachs are going to spend more in 2023. This augurs well for Indian IT service providers. The market has also seen bagging of large cost takeout deals happening in the BFSI space with TCS bagging the Phoenix group deal
- Pareekh Jain, Founder, Pareekh Consulting