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IT services report slowing deal momentum, Q1 FY24 fares worst

While IT services companies have been reporting slowing deal momentum since Q1 2023, the first quarter of this year (FY24) has been the slowest when compared to the same quarter over the last 2 years.

IT firms TCS, Wipro, HCL Tech and Infosys saw slowing deal momentum, particularly in the large and the smallest deal segments.

Client addition
According to an analysis done by CareEdge, these IT firms only added 1 new client in the $100 million band, while small clients below $1 million have nearly halved, from 91 net new clients in Q1FY22 to 56 in Q1FY24.

At least on a year-on-year basis, mid-tier clients in the $10 million and $50 million band have remained the same between Q1FY23 and Q1FY24.

Thierry Delaport, Chief Executive office, Wipro, said during an analysts call, “There are actually some technology companies that have been going through several waves of layoffs, so there’s a bit of a slowdown on the technology side after several years of stronger acceleration of investments. Communications is another sector, where we are seeing that. Some other sectors, healthcare and energy utilities are sectors that are actually probably investing more and less cautiously, if you like. So, this is the context. The reality is that you’re probably going to have to wait for some more months before really getting the confirmation that the market has rebounded for good.”

Globa headwinds
The slowing deal momentum, especially in the small deal segments. is likely the result of corporations stopping discretionary spending, as global markets are rocked with large recessionary headwinds. K Krithivasan, Chief Executive Office, Tata Consultancy Services, said during the analysts’ call that “we are winning new deals, but clients are reviewing the projects underway, and wherever the ROI is not very strong, the next phase of the project is getting paused.”

IT firms have already noted that the larger order books that they have had during their time of financial uncertainty have not exactly fortified them against the macroeconomic headwinds after all. Even existing projects on the books are getting delayed, as clients don’t want to execute needless projects with poor ROIs.

This will be one of the longest seasons of economic pressures for the IT firms. Hiring has slowed down massively for these firms.

For now, IT firms are trying to placate investors with their progress in AI, which will be the new tech frontier- although it is too soon to tell, if they will be able to deliver on this front too. The Hindu BusinessLine

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