The US banking turmoil has hit India’s flagship IT service providers Tata Consultancy Services and Infosys, which this week reported that anxious American clients had avoided spending decisions and even cancelled projects.
Both TCS, India’s second-biggest listed company by market value, and rival Infosys missed analysts’ expectations on growth, as fears of a recession and a crisis in US banking spooked companies into trimming their IT spending.
Following the collapse of specialist US lenders Silicon Valley Bank and Silvergate, and UBS’s emergency takeover of Credit Suisse, “there was a pause in spending in the month of March by the banking customers”, said Sumeet Jain, an IT sector analyst at Mumbai-based ICICI Securities. He said this delayed decision-making and spending “for a few weeks, it wasn’t even an entire month”.
But the banking sector wobble had an outsized impact on TCS and Infosys because finance companies represent a key customer base.
Banking and financial services “is definitely the biggest vertical for all of the Indian IT services industry, including Infosys and TCS”, said Jayanth N Kolla, founder and partner at Convergence Capital in Bengaluru. Of that banking sector business, “the US banking industry contributes between 60 and 65 per cent”, said Kolla.
The “financial services vertical was impacted by budgeting delays at the start of the year led by macroeconomic uncertainties coupled with softness in mortgages and asset management and investment banking”, Infosys chief financial officer Nilanjan Roy said on a call with industry analysts on Thursday evening.
Chief executive Salil Parekh said the environment remained uncertain. “Some industries such as . . . investment banking, telecom, high-tech and retail are more impacted, leading to uncertainty in spend and delays in decision-making. The US is more impacted than Europe,” he said.
Infosys posted quarterly revenues to March of $4.5bn, down 3.2 per cent in constant currency terms compared with the previous quarter and missing analysts’ expectations of 0.1 to 0.3 per cent growth.
TCS chief operating officer N G Subramaniam said customer sentiment in European and American banking, retail and technology sectors “was one of caution” in the quarter to March. “We saw clients deferring newer initiatives which were not critical, and in some cases, completely halt discretionary projects,” Subramaniam said on a call with analysts this week.
“Anxiety around the stability of the banking sector in March also added to the uncertainty,” Subramaniam added.
TCS reported $7.2bn in quarterly revenues, representing 0.6 per cent growth quarter on quarter, but missing analysts’ expectations of a 0.9 per cent rise.
However, analysts said they expected the outsourcers to weather any economic crisis. “The Indian IT industry has proved itself to be a survivalist cockroach in previous recessions,” said Kolla.
Source: Economy - ft.com
