Leading Indian IT companies-Getting busy again

Large cost-optimisation deals are gradually returning for top-tier Indian IT services companies and hiring is likely to see an uptick as clients turn to technology to optimise costs amid the uncertain macro-economic environment.

Typically, top-tier IT companies consider deals worth $100 million or more as large deals and those more than $500 million are referred to as mega deals.

In the recent months, both TCS and Infosys announced bagging mega deals. Phil Fersht, CEO and chief analyst, HFS Research said, “These are largely cost-centric deals with a big focus on transformation. But good long-term clients for TCS and Infy to invest in, as we ride out these turbulent times.”

Most recently, Infosys signed a strategic deal with Denmark-based Danske Bank, to accelerate the bank’s digital transformation initiatives with speed and scale. The deal is estimated at $454 million for a period of 5 years with an option to renew for one additional year for a maximum of three times. The acquisition is expected to be completed before Q2FY24.

Tata Consultancy Services (TCS) signed a deal with UK’s National Employment Savings Trust (Nest), worth $1.9 billion for a total contract period of 18 years. Earlier this month, TCS signed a 10-year contract with the Department of Education to administer and enhance customer experience for the Teacher’s Pension Scheme in England and Wales. In February this year, TCS also bagged a $723 million deal with UKs Phoenix Group Holdings and a 10-year deal with UK retailer M&S. For TCS, such mega deals are returning almost after four years.

According to an ICICI Securities report based on interaction with ISG experts, the latter is seeing improved decision-making in the last two weeks of June this year. Additionally, the deal pipeline remains strong, especially at the top of the funnel. Of course, they also highlight that the demand environment did not improve between April-May 2023 post a slowdown in March 2023 (which was impacted by the banking crisis).

“Therefore, ISG expects demand to revive from September 2023 quarter and may retain its growth guidance of 5% YoY for managed services ACV. There are mega deals in the pipeline that were expected to close in June 2023 quarter, but their closure has been delayed. However, deal flow is coming through in June 2023 and pipeline to TCV conversion is expected to improve from September 2023 quarter,” said the report.

Fersht said there are large deals on the table, they are just taking far too long to close, are too complex, clients want pre-inflationary pricing and sourcing advisors are failing to drive up the value and only focus on cost-cutting.

“They want cost savings immediately and to move fast with the transition – something we call the “digital dichotomy”. And it is hard to find service providers with the financial muscle to do what they need,” he said.

While TCS has won large deals, it also saw one of its large deals ending midway. TCS signed a contract worth more than $2 billion in revenues with Transamerica, a leading provider of life insurance, retirement, and investment solutions, but ended it ahead of schedule, earlier this month. TCS had worked on the 10-year deal for over a period of five-and-a-half years before it was ended.

Infosys signed large deals worth $2.1 billion during Q4. For FY23, it signed a total of 95 large deals with a value of $9.8 billion, 40 per cent of which were net new. “Our pipeline of large deals is extremely strong. Several of these are mega deals and several of them are opportunities for cost and efficiency programs within clients and consolidation opportunities,” Infosys CEO Salil Parekh said.

An analyst said that the industry is likely to see some large deal initiatives as the current macroeconomic situation develops and clients want to optimise costs. “This is similar to the pandemic where we saw a one-time increase in large deals,” he said.

Such deals are also expected to increase the demand for tech professionals. “The recent collaboration between Infosys and Danske Bank signifies a broader trend across the industry, where financial institutions are increasingly embracing digital solutions to stay competitive in an evolving marketplace. Moreover, this shift towards technology-driven operations is expected to drive an overall increase in the demand for tech resources in both tech and non-tech sectors, presenting new opportunities for skilled professionals,” said Santosh Nair, director, and COO, CIEL HR services.

Other HR experts believe there will be an uptick in hiring in the latter half of this year. “The second half of this calendar year we certainly expect things to improve in the IT market. But the quantum will not be significant. These are early signs for us…we have seen 10 per cent improvement month-on-month for hiring. We have seen a revival of contract staffing rather than FTEs (full-time employees). This is how the market moves when coming out of a slowdown. First, the contract staffing will improve and then the FTE,” said AR Ramesh, director, Adecco India. Business Standard