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IT cos getting a hike, finally!

Clients ready to pay more for outsourcing work amid rising attrition levels

IT cos getting a hike, finally!
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IT cos getting a hike, finally!

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- IT firms get 2-3% more price on contracts renewal

- The rise will help IT firms absorb part of the higher wage cost

- After the pandemic, the industry was affected as many clients asked for price discounts and deferred payment option

- IT industry had suffered from pricing pressure for a long

- However, robust demand revival and scarce talent availability enabled IT cos to barain for a better deal in H2

Bengaluru: Indian IT services firms are witnessing first signs of pricing uptick after a long time as clients are

ready to pay more for outsourcing work amid rising attrition levels.

According to industry experts, the rise in pricing is in the tune of 2-3 per cent which is being seen at the time of renewal and for new contracts. However, there is no interim negotiation of pricing for ongoing contracts.

"IT firms are able to get 2-3 per cent more price on contracts that are coming for renewal. Given the high attrition level in the IT industry, clients are ready to pay more. This rise will help IT firms absorb part of the higher wage cost that they have to incur due to the talent war," Pareekh Jain, an IT outsourcing advisor & founder of Pareekh Consulting told Bizz Buzz.

The price hike has come after a long time for the Indian IT industry which was facing pricing pressure before the pandemic. Even after the pandemic hit the industry, many clients asked for price discounts and deferred payment option as their businesses were affected badly. The pricing environment started improving from the second half of last fiscal with stability in pricing coming back from January this year. Given the robust demand environment and scarce talent availability, many IT firms are now asking for a price hike in new contracts or during renewals.

"We have already got rate increases from our clients in the first six months of this year. All the new deals that we are getting, we are receiving them as a standard rate card. The demand is so high in the market right now, I don't really see any rate pressure. We have to see how we can push that number a little bit, which will give us leeway from an operational standpoint,'' Joseph Anantharaju, Executive Vice Chairman & CEO (Product Engineering Services) of Happiest Minds had told Bizz Buzz.

In a report, Motilal Oswal Research said companies are getting a bit of the pricing power back in recent months. "Given the strong demand and tight supply situation, almost all companies are seeing pockets of pricing strength. Price tailwinds are best in new deals, while it is difficult to renegotiate on existing contracts, especially fixed-price deals," the brokerage firm said.

"TCS is the only exception on pricing as it remains focused on increasing client wallet share and is fine with absorbing the current volatility in costs," the report noted.

Given better pricing, margin pressure faced by IT firms is likely to ease a bit in the ongoing quarter.

Debasis Mohapatra
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