With clients in the financial services sector opening up to deals, the Indian IT sector is finally witnessing some revival in the segment. Large IT companies, including Tata Consultancy Services (TCS), Infosys Technologies and Wipro Technologies, are trying to grab contracts with firms such as Bank of America (Merrill Lynch), RBS (ABN-AMRO), Goldman Sachs, Lloyds TSB, UBS and Barclays (Lehman).
The financial services sector witnessed a number of mergers and acquisitions last year as a result of the meltdown and these firms are now looking at IT integration work. Analysts in the industry say to start with, these deals could vary from $30 million to $50 million for each vendor.
V Balakrishnan, CFO at Infosys Technologies, said, ?These banks are already our clients and we have got some incremental work from them, though the clients are still conserving on future spending.? Balakrishnan, however, refused to divulge the size of the contracts.
Suresh Senapaty, executive director and CFO at Wipro, said, ?We are seeing the European banks opening up. However, the US clients are still conservative. We are witnessing some incremental, as well as large deals coming from the sector.?
Recently, S Ramadorai, CEO and managing director at TCS, said the firm had bagged some deals related to Bank of America and Merrill Lynch as part of their master agreement with both banks.
Before the downturn, in 2007-2008, the IT industry was heavily dependent on the financial service sector, as it contributed almost 40% to their revenues. With the financial meltdown, most banks went bankrupt and contribution from the sector to the overall revenues came down by almost 7-10%. The revival is expected to show up in the coming quarters.
Analysts Bhavtosh Vajpayee and Nimish Joshi at research firm CLSA, in a recent report, point out that “IT spending at financial services clients is picking up significantly faster than our expectations, as well as market consensus. While there remains a case for structural changes in IT spending priorities in banks, the current imperative to cut costs amid a still troubled environment is driving a spending surge that will trigger an earnings upgrade cycle for financial services heavy stocks — i.e. Infosys and TCS”.
However, these contracts have come in at stringent terms and conditions and increased pricing pressures, say industry watchers. ?Pricing pressure continues and clients might ask for severe conditions, but we don?t need to accept them,? Balakrishnan added. An analyst with a broking firm says, ?These contracts could have come at a price negotiation of about 15-20%. We are expecting some more contracts to open up in the next six months.?
