Major Information Technology giants in India, like TCS and Infosys, and others could soon benefit from increased spending on innovative capabilities and transformation across industries.
Major Information Technology giants in India, like TCS and Infosys, and others could soon benefit from increased spending on innovative capabilities and transformation across industries. Comments coming in from firms across the globe hint at either continued or higher expenditure on transformation which will lead to acceleration in IT services spending, brokerage and research firm Kotak Securities said in a report. The report adds that opportunities range from workplace management to boosting customer experience and digital security. IT services companies have already indicated strong order pipelines with deals of varying sizes.
Drivers behind the investment acceleration in new innovative capabilities vary for companies across different sectors. The report adds that some of these drivers may include, building resilience in business and operations, reimagining customer experience, building new business models to cater to changes in customer behavior, and even catching up to digitally mature and cloud native competitors. “The intent of higher spending will likely result in corresponding opportunities for IT services companies,” Kotak Securities said. Companies could also be undertaking transformation initiatives in an effort to reduce operating costs and increase productivity.
The report adds that retailers with better e-commerce presence have fared better during the pandemic, which will push these firms towards creating better omnichannel capabilities. Comments from Home Depot, Marks & Spencer, Kohl’s, and Lowe’s indicate that their customers increasingly took to their online channels to shop during the pandemic. “A few retailers have indicated ambition to rapidly accelerate transformation efforts. Inditex, for example, plans to increase online sales to 25% by 2022 from 14% currently,” the report added. Along with retailers, consumer firms also plan to expand e-commerce platforms. Non-health insurance firms have also highlighted that prior investments in digital tools and capabilities helped build operational resilience.
With the pandemic forcing people to sit at home, even the banking and finance industry has been looking towards increasing their digital adoption for retail and commercial clients. “Among large banks, Goldman Sachs indicated continued investments in technology platforms to enhance user experience and straight through processing. Morgan Stanley will invest in technology and platforms to continue to modernize the company,” the report noted. Apart from these sectors, Kotak Securities said that comments made by players in the energy, healthcare, pharmaceuticals, and hospitality have been in favour of increasing spends on areas that will benefit the IT companies.
Gartner expects outsourced IT services spending growth to increase to 6-8% range between calendar year 2021-2024. “ We note that Tier-1 IT has strong capabilities in several digital competencies evidenced from rankings in the leadership quadrant in various industry analyst reports,” Kotak Securities said. The report adds that TCS and Infosys will be at the forefront of this transformation courtesy strong interactive practice, while HCL Technologies and Wipro have strength in the digital infrastructure layer. Kotak Securities has a ‘Buy’ rating on Tech Mahindra with a target price of Rs 845 per share, and on Infosys with a target price of Rs 1,115 apiece.