Easing BFSI deals take toll on IT cos

Bengaluru Indian IT services companies are facing significant demand slowdown in the BFSI (banking, financial services and insurance) vertical, which is the biggest segmental contributor to the top lines of most companies.

According to company management and brokerage firms, most volume ramp downs (less number of projects) are happening in the BFSI vertical. Against this backdrop, growth revival in the first half of this fiscal year seems difficult, they opined.

In the quarter ended June, growth in the financial services vertical declined 4.2 per cent year-on-basis for Infosys. BFSI vertical contributed close to 28 per cent to overall revenues of the Bengaluru-headquartered company during this period. Similarly, Wipro saw growth in the BFSI vertical declining 3.4 per cent YoY basis during the first quarter of FY24. Wipro drew close to 35 per cent of its revenue from this vertical.

Among large players, TCS witnessed three per cent rise in the growth rate of BGSI vertical during this period. Management of large IT firms indicated that they didn’t expect any demand revival in the BFSI segment in the near-term.

“In the short term, we see some clients stopping or slowing down work on transformation programs and discretionary work. This is especially so in financial services, in mortgages, asset management, investment banking and payments, and in the telecom industry,” Salil Parekh, CEO of Infosys, has said during the analyst call post first quarter earnings.

However, Parekh pointed out that cost takeout deals remained strong in the BFSI vertical with large banks leading the show.

“Financial services vertical witnessed continued softness in areas like mortgage, asset management, investment banking, cards and payments. Large and super regional banking clients in the US have been resilient during this quarter. Large banking clients are focusing on vendor consolidation, cost takeout and self-funding transformation programme,” he added.

Wipro management echoed similar sentiment.

“High-Tech and BFSI are the two sectors that were impacted the most due to softer discretionary spends,” Thierry Delaporte, CEO of Wipro has said during the analyst call adding that consulting business space in the BFSI vertical has also suffered owing to the weakness in demand.

Not only large firms, but also mid-tier IT services companies with large exposure to BFSI vertical also reported weak numbers. Mphasis is one of those mid-tier firms which reported weak Q1 performance despite having strong deal pipeline.

“Mphasis reported a third consecutive decline in its quarterly revenue, which was due to weakness in the banking & capital markets (BCM) vertical (now accounting for 49 per cent of overall revenue). Company is still facing downturn in mortgage business. There is also weakness in the rest of the banking & capital market segment owing to exposure to certain regional banks in the US and continued delay in decision-making even across large banks,” ICICI Securities wrote in a note.