In the backdrop of startling revelations at Satyam Computer Services and the economic meltdown the world over, the third quarter result announcements of Indian IT companies were a keenly watched affair. While the results have confirmed some of the fears like vendor consolidation and pressure on pricing, they also threw some surprises in terms of the new deals emerging from the beleaguered US market and the BFSI vertical.
Against expectations, a majority of the new deal bagged by the top Indian IT companies have emerged from the US, a market which is the epicentre of the global financial crisis. While addressing an analyst call after the result announcements, N Chandrasekaran, COO of TCS termed it a contradiction and said, “Opportunities are there, at the same time you should expect surprises”.
Consider this: India’s largest software company, TCS added 41 new clients in the quarter ending December 2008. Of the six big deals signed during the quarter, five came from the US. On the other hand, out of the 30 new clients that India’s second largest IT company, Infosys Technologies added in the third quarter, 11 are based out of North America, eight are in the Europe while the rest 11 are spread across the world.
Similarly, 69% of HCL Technologies’ new deals during the quarter (26) come from the US in revenue terms. While emerging economies like Continental Europe and Asia accounted for 16% and 8% of the new deals respectively. “The US is the largest market for Indian IT industry and contributes around 60%-61% to the total revenues of the industry. This ratio will not change in the short term. However, the crisis has prompted IT companies to look at new emerging markets more seriously,” said Gaurav Sahu, partner, Grant Thornton India.
While the US is the biggest market for Indian software firms, in terms of verticals, BFSI is the largest revenue contributor for the industry. This segment is also the maximum impacted due to the financial crisis. However, as per the Q3 announcements, new deals from the vertical continue to flow albeit at a slower pace. Moreover, new vertical are gaining dominance vis-?-vis traditionally strong sector point out analysts.
For instance, TCS signed two large deals in retail, one each in BFSI, utilities, Hi-tech, pharma. “We see opportunities in retail, media, pharma and the utility sectors. They are doing better than BFS, manufacturing and hi-tech sectors,” said Chandrasekaran. For Infosys, the BFSI sector continues to be strong. While it signed nine new clients from the sector, the vertical recorded a growth of 4.1%, which is the highest among all sectors.
In the case of Wipro, India’s third largest IT company, financial services grew 28% y-o-y while retail and transportation showed a growth of 38% y-o-y in constant currency. “The BFSI vertical has shown good growth this quarter because of the deals which could have been in the pipeline. This may change in the next quarter, as the Q4 is expected to present the real state of affairs in terms of deal flow,” said Harshad Deshpande, IT research analyst with Ambit Capital. He added that volume growth this quarter should be seen in conjunction with pricing, an area which is under pressure.
However, Ashok Vemuri, head, banking and capital markets of Infosys attributes the trend to “some amount of dust settling,” in the vertical. He adds that the company is seeing an increase in the volumes and the deals as well as clients are increasingly resorting to service providers like Infosys for help in these challenging times. Well, that’s some good news for the Indian IT industry, for which the going has been tough off late.
