The first quarter of this financial year has been a period of consolidation and revival in the Indian information technology (IT) sector. The deal taps have opened up and contracts have swollen in value. Bigger, sizeable deals are always a sign of well-being in any sector, and the software industry has had it good so far this fiscal.
The good news is that the large-scale deals have started to happen across every vertical, including automotive, aviation, telecom and insurance. The bigger deals started to kick in January and by the time April came, it was clear that this was becoming a pattern and not an exception.
Chief financial officers in large Indian IT corporations believe that there are bigger deals waiting to be cracked in the coming quarters, and that is a good indicator of the overall health of the sector. TCS, Infosys and Wipro?the top three?along with HCL and Patni have led the charge, and the mid-sized firms are also expected to join in shortly.
What may thrill the investors even more is the good news that some delayed contracts will also be cleared in the coming quarters. Also, some large deals valued at over $10 billion are reaching termination at the end of this year. These would then be up for renegotiations and Indian IT players are sure to be in the fray to get a slice of the pie. So one can expect a few more big IT deals to swing to Indian shores soon.
Customers, while still cautious about the overall macroeconomic environment, have started to loosen their purse strings a wee bit with an eye on cost optimisation. American clients have especially started to spend on software, with the banking and financial sectors exhibiting a marked improvement in performance. European clients, according to IT firms, are still a bit cautious but they too have noticed how the environment has started to change.
Transformational deals had created a big buzz a couple of years ago. Recession had swept them back a bit but now they are showing signs of coming in again. The April-June period has witnessed signs of recovery as companies started to look at new, cutting-edge business models. Additionally, as mentioned earlier, Indian IT vendors are competing with global players for the large contracts that are expected to be renewed.
In fact, the large deals that have come back to sit on the Indian IT tables have made recession look like a distant bad dream. Deal conversion rates have surged during the period between April and June, with greater client wins by TCS, Infosys and Wipro.
The Rs 4,200-crore UK pension deal cracked by TCS was what made analysts sit up and take note of the trend. All the global majors were apparently vying for the prestigious deal but TCS managed to win the bid quite comfortably. This deal came as a definitive indicator of India?s return to the big stage. HCL?s contract with pharma major Merck, worth Rs 2,350 crore, was another landmark deal.
What was satisfying for most was the continued support from the public sector. The Accelerated Power Development and Reform Programme of India (APDRP) is a case in point. The programme has given out IT contracts worth Rs 1,220 crore and companies like TCS, HCL and Infinity Computers all dived in to snatch the goodies. With Aadhaar continuing to make news, more deals like the one Mindtree got are also in the pipeline.
Having presented the pretty picture, it has to be said that any level of overconfidence would be misplaced at this point in time. Many companies still face immense pricing pressures out in the market and even the biggest of firms have acknowledged this. While customer ?walk-ins? have improved considerably, many are still adopting a cautious approach. Lessons from the recession are still fresh in the minds of many.
The coming months will continue to offer friction and deals are not likely to handed out on a platter all the time. A tremendous amount of work is still required for the sector to claim ascendancy. But Indian firms are known to chip away at work and have never been intimated by global IT services biggies. They had to fight with the likes of IBM, Oracle and HP but they have always held their own.
It is fair to say that it?s a new start for the industry, a second coming so to say, and it is imperative for the health of the industry that more such deals come India?s way. The world is watching.
dj.hector@expressindia.com