Despite slower deal momentum, IT majors not worried, have large pipeline

Amid a tough macro-economic environment, Indian IT firms will see their deal win momentum slowing down in the quarters to come as delays in decision-making, halting of transformation projects, and tech spending cuts by the BFSI sector play spoilsport.

In Q4, IT majors’ deal pipeline did not see any significant growth. Infosys’ large deal total contract value (TCV) stood at $2.1 billion against $3.3 billion in the previous quarter. Wipro’s TCV stood at $4.1 billion against $4.3 billion in Q3. TCS, however, logged a TCV of $10 billion against $7.8 billion in the last quarter.

However, the management commentary on the pipeline has been positive. Salil Parekh, CEO, Infosys, at a Q4 earnings call, said: “We have an extremely large pipeline; the largest pipeline we have seen in a long while, while there is still a slowing in the cycle of closing the deals, the deals are very strong, and some of them are mega deals. So, we feel good that there is a pipeline focussed on cost and efficiency and consolidation.”

Similarly, Rajesh Gopinathan, CEO, of TCS, said: “Our TCV has been very strong throughout the quarter even in March. It is coming across both existing customers as well as new customers. In fact, this year, our new client TCV in the US has been at a record high. So, there is nothing that shows that deal flow has actually slowed down.”

Going forward, analysts believe the deal win momentum may slow down for the next six months, as uncertainty in Western economies makes clients jittery. Omkar Tanksale, Senior Research Analyst, Axis Securities, said: “The uncertainty in the economic scenario has resulted in delays in decision making, hence, looking forward, deal momentum will see a slowdown, contract values will reduce by 10-20 per cent.”

Adding to the same, Prashanth Tapse, Senior V-P (Research), Mehta Equities Ltd, said: “The TCV for Q4 has been weaker than expected, and going forward for another six months, this will remain the same and growth will be very marginal. There wouldn’t be any aggressive big orders to be bagged and TCV growth will remain under pressure.” However, growth opportunities would spurt back increasingly in a year, he added.

In Q4, a few companies addressed cancellation and ramp-down of deals and saw it in specific cases. Going forward, this might an increase. Tanksale said more ramp-downs and cancellations could be expected; however, it will only be for specific operations and agile operations will still continue.

The BFSI sector, which the IT sector depends on heavily, might drag the boat down. Tapse said: “The Indian IT has an exposure of 40-50 per cent to the BFSI sector and the US markets, which are still not out of trouble. Clients in the sector are still uncertain and considering the changes in the environment, they could rethink their IT spending.”

While deal wins momentum is under stress, winning large deals will also get tougher for IT firms. The client focus has been shifting from transformation deals to cost takeout deals, the analysts added. The Hindu BusinessLine