HCLTech told analysts last week about the uptick in discretionary spending in BFSI, even as its other verticals continued to be driven by cost takeout deals.

During the April-June quarter Wipro also saw a spurt in its Capco consulting, which mainly focuses on BFSI clients and discretionary spends.

Experts hope the revival of discretionary spending would become widespread in the next two quarters, as they expect a rate cut to happen soon. Clients have already hired consultants to discuss next year’s budget and take a call on discretionary spending, analysts told ET.

HSBC Global Research said in a note on HCLTech last week, “There has been some uptick in discretionary spends within banking customers compared to a few months back. Most other verticals are status quo and the demand there is still driven by cost optimisation deals.”

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Significantly, the financial services vertical of HCLTech was impacted by the insourcing of one of its clients, State Street, during the June quarter. The company also expects the impact of the divestiture to continue in the current quarter.

Also Read | How BFSI is playing a lead role in Indian IT services comebackSimilarly, Wipro said in its first-quarter earnings call that it is seeing some green shoots in discretionary spends, especially in the BFSI segment, and that was reflected by its consulting business Capco.

“If you look at the BFSI segment, specifically if you look at Capco (consulting firm), we are seeing growth coming from both Europe and the US,” Wipro CEO Srini Pallia said during the call.

Unlike the third and fourth largest IT services firms in the country, discretionary spending is still largely evading bigger rivals TCS and Infosys, as stated in their first-quarter earnings statements. But the green shoots have given experts some hope of revival.

Avinash Vashistha, chairman of Tholons, expressed high confidence in an impending US Federal Reserve rate cut in September, citing the current economic conditions, progress on inflation and recent commentaries by the Fed.

Also Read | IT companies expect BFSI to lead recovery in a few quarters

“A reduction of at least a percentage point in 2024 is highly anticipated,” Vashistha said. “Clients are already proactively engaging with consultants to discuss next year’s budgets, with a particular focus on discretionary spending allocated towards AI (artificial intelligence) and digital transformation initiatives. I foresee a broader increase in discretionary spending across various verticals and companies, commencing from the fourth quarter of this fiscal year, which coincides with the first quarter of the next calendar year for most clients.”

Ramkumar Ramamoorthy, partner at Catalincs, a growth advisory firm, said, it is heartening to see some green shoots in BFSI growth for some companies. “Even companies whose traditional strengths are in verticals outside of BFSI have indicated that they are seeing an uptick in spend in the BFSI segment, driven by the need for technology infrastructure modernisation, risk management and regulatory compliance.”

He further said, “I expect companies that have invested in BFSI consulting capabilities to be bigger beneficiaries when discretionary spend comes online as they will be able to ‘shape deals’ rather than merely participate in them through RFPs (requests for proposal). Having said that, we need to wait it out for a few more months and not extrapolate these early indicators to be the beginning of a larger trend.”

HCLTech told analysts last week about the uptick in discretionary spending in BFSI, even as its other verticals continued to be driven by cost takeout deals.

During the April-June quarter Wipro also saw a spurt in its Capco consulting, which mainly focuses on BFSI clients and discretionary spends.

Experts hope the revival of discretionary spending would become widespread in the next two quarters, as they expect a rate cut to happen soon. Clients have already hired consultants to discuss next year’s budget and take a call on discretionary spending, analysts told ET.

HSBC Global Research said in a note on HCLTech last week, “There has been some uptick in discretionary spends within banking customers compared to a few months back. Most other verticals are status quo and the demand there is still driven by cost optimisation deals.”

ETtech

Discover the stories of your interest

Significantly, the financial services vertical of HCLTech was impacted by the insourcing of one of its clients, State Street, during the June quarter. The company also expects the impact of the divestiture to continue in the current quarter.

Also Read | How BFSI is playing a lead role in Indian IT services comebackSimilarly, Wipro said in its first-quarter earnings call that it is seeing some green shoots in discretionary spends, especially in the BFSI segment, and that was reflected by its consulting business Capco.

“If you look at the BFSI segment, specifically if you look at Capco (consulting firm), we are seeing growth coming from both Europe and the US,” Wipro CEO Srini Pallia said during the call.

Unlike the third and fourth largest IT services firms in the country, discretionary spending is still largely evading bigger rivals TCS and Infosys, as stated in their first-quarter earnings statements. But the green shoots have given experts some hope of revival.

Avinash Vashistha, chairman of Tholons, expressed high confidence in an impending US Federal Reserve rate cut in September, citing the current economic conditions, progress on inflation and recent commentaries by the Fed.

Also Read | IT companies expect BFSI to lead recovery in a few quarters

“A reduction of at least a percentage point in 2024 is highly anticipated,” Vashistha said. “Clients are already proactively engaging with consultants to discuss next year’s budgets, with a particular focus on discretionary spending allocated towards AI (artificial intelligence) and digital transformation initiatives. I foresee a broader increase in discretionary spending across various verticals and companies, commencing from the fourth quarter of this fiscal year, which coincides with the first quarter of the next calendar year for most clients.”

Ramkumar Ramamoorthy, partner at Catalincs, a growth advisory firm, said, it is heartening to see some green shoots in BFSI growth for some companies. “Even companies whose traditional strengths are in verticals outside of BFSI have indicated that they are seeing an uptick in spend in the BFSI segment, driven by the need for technology infrastructure modernisation, risk management and regulatory compliance.”

He further said, “I expect companies that have invested in BFSI consulting capabilities to be bigger beneficiaries when discretionary spend comes online as they will be able to ‘shape deals’ rather than merely participate in them through RFPs (requests for proposal). Having said that, we need to wait it out for a few more months and not extrapolate these early indicators to be the beginning of a larger trend.”