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Downturn: Indian IT firms brace for a chilling winter this year

India’s four largest IT services companies - Tata Consultancy Services (TCS), Infosys, HCLTech, and Wipro - registered record deal wins, better pricing, lower employee costs and margin growth in the second quarter of the current financial year. Yet, there is an underlying sense of unease as an energy crisis in Europe and rising inflation in the United States threaten to disrupt the macroeconomic situation.

There were no outright gloomy predictions as they announced financial results for the July-September quarter last week, but the c, which has steamed ahead in the last two years as the Covid-19 pandemic fuelled massive digitisation across businesses, leading to a huge demand for their services.

Chill, no pill

TCS, India’s largest IT services company by revenue, beat estimates amid recessionary trends in its biggest market, the United States, and geopolitical turmoil in Europe, the second largest.

The Mumbai-headquartered company is, however, keenly tracking macroeconomic factors that may affect global technology spending, said chief executive Rajesh Gopinathan in a post-earnings call .

“The reason we are cautious is because there is a big unknown about how exactly the energy crisis will pan out. If gas becomes an issue, you could see large production outages across Europe that will have a ripple effect... because that feeds into many industries. So, we have to wait and see,” Gopinathan said.

TCS thinks it would have better visibility by January on how the cost disruption from the energy crisis would impact client budgets.

“Difficult to say if we will be totally insulated, but our intent is to stay close to customers, carve out a niche for ourselves and minimize any impact,” he added.

Though TCS reported $8.1 billion in deal total contract value (TCV) during the quarter and no reduction in deal pipeline, its management outlined concerns over the elongated deal closure cycle.

TCS also said there was a ‘conservative visibility’ on large deals, meaning clients were more comfortable going for mid- to small deals within a one-year timeline as that gave them better budget control given the current uncertainty.

Infosys, the second largest software services firm, also put in a cautionary note about the impact on business due to the macroeconomic and geopolitical situation in the United States and Europe, even as it increased the upper end of its revenue guidance to 15-16% for the ongoing fiscal year on the back deal wins, which hit a seven-quarter high.

“We continue to see good traction. We also see that there is some caution, as mentioned last quarter, in mortgages within financial services and retail. We now see some caution in high tech and in telecom… these are limited to discretionary spends,” said chief executive Salil Parekh in a post-results conference.


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