Domestic IT firms paint a bleak picture

The management commentaries of top domestic IT companies paint a bleak picture as discretionary spending in key vertical like BFSI and retail remain subdued over next year.

According to analysts, IT spends by companies in sectors like BFSI and retail are likely to remain low due to the waning impact of US tax reforms and the policy uncertainty in the US in light of the impending elections.

However, domestic IT firms are expecting that margins remain stable and on a constant currency basis, pricing, large deal transitions and cost of onsite delivery will be the key margin movers, going forward.

On the demand front the market leader, TCS, is confident about medium- to long-term demand with cautious outlook in BFSI.

The Bengaluru-based Infosys, the second largest IT firm in the country, is expecting large deal wins reflecting robust demand.

Infosys continued with

■ CITI BANK, Wells Fargo, Freddie Mac, DB, CS and UBS are key accounts to watch out for given the special situations like consolidation, insourcing, reassessments. strong hiring as it added 6,938 employees during Q3FY20 taking total head count at 2,43,454, while attrition rate came down to 17.6 per cent from 19.4 per cent in the quarter.

For HCL, deal pipeline was at an all-time high and the management is confident of higher conversion.

Wipro is seeing its digital investments are yielding results. However, BFSI deal win rate has been slow of late — delayed due to macro uncertainty and resultant delays in customer decision making.

“While key verticals should remain tepid, we expect as retreat in some horizontal trends (e.g.

IMS) where public cloud repatriation should drive growth. In that context, we prefer Infosys and HCLT among large caps, and LTI among mid-caps. This is attributable to decent visibility in growth, headroom for profitability improvement and reasonable valuations,” said Motilal Oswal Securities in a report.

Commentary of major banks like Citi, JP Morgan, BoA and Wells Fargo on technology spending remained stable, indicating flattish IT spends in CY20. Data governance, KYC, infrastructure, automation, mobile and platform solutions will likely be the key areas of IT spends by US banks in CY20.

In fact European banks (e.g. UBS) continue to go through cost pressures. Focus on insourcing of technology workforce was reiterated.

Citi bank, Wells Fargo, Freddie Mac, DB, CS and UBS are key accounts to watch out for given the special situations like consolidation, insourcing, reassessments. “Tier-I techs continued to see a moderation in revenue growth in

Dec’19 quarter... EBIT margins were broadly in line across Tier-I companies. Order intake was weak, although companies remain confident about a pick-up in bookings in Mar’20 quarter, aided by pipeline. Companies continue to indicate increased targets of fresher hiring for FY21, providing further evidence around our sector thesis,” said Emkay Global in a report.

“We continue to expect a further moderation in growth for the IT Services sector as a whole,” it further said.