In September alone, 26 deals were signed by key IT services players, including six each by domestic firm Infosys and global player Accenture while Cognizant grabbed three deals.
Some of key projects in September included Infosys’ deals with Proximus group, LIC and Metro Bank while Cognizant announced agreements with Kombit, England and Wales Cricket Board and Mecwacare. Wipro bagged one deal with JFK International Air Terminal.
The optimism improved with revival of the key banking and financial sector, especially in North America. The upcoming cycle has also moved toward more certainty with the tamed US inflation, interest rate cuts and a likely stronger dollar following the US presidential election, said analysts.
ETtech“We are heading into the next year’s budgeting cycle and see a far higher certainty as inflation is coming under control and Fed rate cuts are no longer a hope but already underway,” said Kumar Rakesh, associate director at BNP Paribas and author of the report.
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Though the September quarter missed mega outsourcing deal announcements, top tier IT firms announced sequential increases in deal wins and Infosys and HCLTech, the country’s second and third largest IT firms, announced upward revision of business growth.
Under managed IT services, total deals increased 15.1% year-on-year to a record $26.7 billion, driven by increased mega-deal activity and longer deal durations, said a report by Nuvama (formerly Edelweiss) Institutional Equities.
“As we get into the December and March quarters, it may soften a bit because of the holiday season,” Rakesh said.
The second half of a financial year is usually subdued for IT services players owing to post-holiday and furlough season which means fewer working days for employees due to clients delaying their spends and project work.
However, the management commentary in the September quarter from most companies was upbeat with deal activity returning going forward, amid retreat of employee additions, after a fall of seven quarters.
October saw 16 deal wins, with Cognizant announcing three deals, with du, FCCI Insurance Group and Alnylam Pharmaceuticals, while Tata Consultancy Services (TCS) and Infosys and Tech Mahindra grabbed two deals each.
The deals signed during the month included TCS bagging projects from Department of Social Protection and Insper, Infosys signing with Old National Bank and Zooplus, while TechM won deals from Payoneer and Ooredoo Qatar.
Most of the multi-year deals signed were a combination of renewals and new deals, including several digital transformation deals. The deals mostly have GenAI capabilities built-in to make them technology agnostic, even if specific outcomes or cost savings are difficult to establish.
Ramkumar Ramamoorthy, partner at tech growth advisory firm Catalincs, said the deal momentum was a feel-good metric and a validation of the long-term relevance and strength and sustainability of the business, as well as stickiness of client relationships.
Yet, he said, “Unless we know the finer details of the deals—such as whether the deal is a renewal of existing business or incremental business, whether the deal focuses is on ‘run the business’ or ‘change the business’, whether the contract duration remains the same or has been extended—we cannot gauge the real impact on key aspects of revenue, margin, or digital transformation of clients’ businesses.”
The deals renewed so far are being broken down by clients into smaller sizes and shorter tenures weighed down by tighter discretionary spending, waiting for macroeconomic certainty.
BNP Paribas’ September report said, “September was an exceptionally busy month in terms of deal-win announcements by IT Services firms. Accordingly, the 3M rolling sum of deal signings, which is a strong one-quarter lead indicator of deal TCVs, remained strong in September. We are more convinced about potential consensus earnings estimate upgrades for the sector.”
