IT sector: Near-term tech demand outlook remains subdued, Motilal Oswal

We met a few IT services companies and industry participants and also attended the NASSCOM GCC event during our recent Bangalore trip to get a sense on the demand amid adverse macro environment.

Our discussions indicate continued pressure on near-term tech spending at large enterprises, along with cost-saving mandates for their technology teams, especially in the banking, financial services and insurance and retail/consumer sectors.

While the long-term focus is on the implementation of technology and the expansion of GCC footprint (to handle in-house capabilities), the current environment means stable or lower spending in the near term.

We continue to see the cost optimisation trend as positive for Tata Consultancy Services Ltd. given its superior capabilities to execute cost-saving mandates. We reiterate TCS as our top pick for 2023.

Here are the key takeaways from our meetings:

Near-term demand continues to face macro headwinds

• Our interactions with industry participants and experts at the NASSCOM GCC event in Bangalore suggest that large corporate clients continue to keep tight control over their technology budgets.
• A persistently weak macro environment in the U.S. and Europe is leading to a cautious near-term outlook on technology spending, especially at large banks, with cost optimization work being outsourced to tech vendor partners.
• For example, a large global bank has a clear mandate for its team to cut the technology budget and is aggressively pushing IT vendors to cut costs.

High demand for senior leadership talent

• Our discussions with a senior tech recruiter and industry participants suggest that the movement of mid-to-senior leadership at IT services firms is a reality, partially on account of multiple CEO-level changes.
• Moreover, there is demand for senior talent from both IT services and captives, especially in delivery roles.

ER&D demand driven by selective verticals

• Demand in the automotive vertical remains very strong and has not been affected by weak macro.
• Engineering captives continue to grow as more companies add presence in India to take advantage of talent availability.
• Aerospace continues to see strong spending from customers as demand for travel remains very high. The industry saw pressure from
• high layoffs during the pandemic, which is now resulting in talent scarcity.

For report, https://www.bqprime.com/research-reports/it-sector-check-near-term-tech-demand-outlook-remains-subdued-motilal-oswal

Bloomberg