Slowing spends cast shadow on Indian IT firms
IT services market globally to cross $1 trillion in 2019, but growth rate to slow to 4.7%, says Gartner
IT services spending worldwide in 2019 is projected to cross $1 trillion (~73.5 trillion) — for the first time to have done so — but that does not call for a celebration for the export-driven IT services industry in India yet.
The reason for that is the market, bogged down by an anticipated slowdown in global economies, currency volatility and trade wars, is expected to grow at a slower rate of 4.7 per cent in 2019 as compared to 5.9 per cent in the previous year, according to research firm Gartner.
This comes at a time when the Indian IT services industry is putting in efforts to return to double-digit growth, but has seen limited success so far. Other than industry leader Tata Consultancy Services (TCS), none of the leading Indian IT majors is yet to achieve the double-digit growth mark.
According to Gartner, overall IT spends, including spending on IT services software, computer hardware, data centre systems and communications technologies, are expected to grow slower at 3.2 per cent in 2019 to $3,816 billion as compared to 4.5 per cent clocked in 2018.
Within that, spending on IT services, in which Indian players such as TCS, Infosys and Wipro play a big role, is the secondlargest segment with a share of 27 per cent.
The projection by the global research firm comes at a time when Indian IT industry body Nasscom has given a conservative exports growth guidance of 7-9 per cent for 2018-19, not much different from the 8.4 per cent the industry logged in the previous fiscal year.
Infosys, India’s second-largest IT services company, which delivered better than expected numbers in the September quarter, has still held on to its original guidance of 6-8 per cent (in constant currency).
Even though the Indian IT services industry accounts for just around 12 per cent of the overall IT services opportunities
with revenues of $126 billion in 2017-18, the sector still holds the lion’s share in the global IT offshoring market, which is pegged at around $300 billion.
Giving the rationale for the likely slowdown, Gartner said the dip in global growth rates and cost optimisation pressure on clients would hurt IT spend.
“An expected global slowdown in economic prosperity, paired with internal pressures to cut spending, is driving organisations to optimise enterprise external spend for business services such as consulting,” the report said.
A study done by the global research firm also says that 46 per cent of enterprises have indicated consolidating their IT services supplier base as one of the effective measures to optimise cost.
"All the factors indicate the overall market is moving nowhere. It is rather stable. So, higher growth in IT spending is not happening in the near future," said Pareekh Jain, managing director, India, at HfS Research.
“Secondly, the digital services pie is also eating into traditional services businesses while the overall market remains nearly flat.”
Besides, some global enterprises are resorting to in-sourcing, which is affecting outsourcing.
These factors have prompted both Indian as well as global IT services players to give a conservative guidance. In 2018-19, Accenture (which follows the August-July cycle) has guided for a revenue growth rate of 5-8 per cent in constant currency (CC) terms, much lower than 10.5 per cent it reported last year, factoring in the impact of a stronger dollar apart from uncertainties around Brexit and trade wars.
However, Tata Consultancy Services (TCS) and Infosys had given no indication of slowing growth in IT spend in coming quarters.
NG Subramaniam, chief operating officer of TCS, had said it was too early to gauge how client spend would be in the coming year. "Our customers are closely watching what is happening, but it is too early to say how it (trade war) is going to percolate into the budgets for the next year," he told analysts in the post-earnings call.
Some industry watchers state it may be too early to say IT spend will come down in the coming year.
“When the largest market for IT services, the US, is growing at more than 4 per cent and all IT services firms, both in India and globally, are reporting sound earnings, we should wait for any conclusion,” said T Mohandas Pai, chairman of Aarin Capital.