Despite the several challenges presented by the coronavirus (Covid-19) outbreak, the Indian IT services vendors have ably demonstrated their ability around business continuity planning, says GlobalData, a leading data and analytics company.
An analysis of GlobalData IT Contracts Database, which tracks the publicly announced IT contracts, reveals the extent of challenges that the industry is facing. The number of IT services contracts signed in the first quarter (Q1) of 2020 have declined annually by 40%. The decline in new contract signings for March 2020 alone is 42% from the previous month and 65% when compared to March last year. This contraction of contracts is expected to continue for the next two quarters at the very least.
Nishant Singh, Head of Technology and Telecoms Data at GlobalData, says: “The short to mid-term challenges of the Indian IT services industry owing to the Covid-19 outbreak are obvious. However, there will be a strong pent-up demand in the mid to long-term. Given the challenges, organisations around the world now appreciate the need for operational and systems resilience. Although spending has halted amidst the spread of the pandemic, the crisis is expected to accelerate the uptake of digital service applications, including cloud and automation.”
In addition, there are several other positives that the outbreak has brought to the fore in the recently announced quarterly results of the major Indian IT vendors. TCS had very strong deal closures during the quarter, and the company expects a higher rate of digital technology adoption owing to the crisis. Infosys and Wipro too have asserted having strong deal momentum and a healthy pipeline.
Singh continues: “The vendors seem to have transitioned relatively well to the need to work-from-home, and the maintenance of essential services for clients has continued amidst the three-week lockdown in India and elsewhere at customer locations.”
The Indian IT industry also seems well poised to respond to pricing pressures owing to discounts, payment term extensions or restructuring requests for existing spends. Most of the large Indian IT services vendors have large cash balances and they are definitely in a position to make these concessions for clients, be it providing them with discounts or interest-free credit for extended periods.
Singh adds: “The depreciation of the rupee will also help offset some of the crisis as the Indian IT services industry charges most of its clients in US dollars. Margins for vendors are also likely to be aided by lower travel costs, which could translate into a long-term benefit. Clients and vendors are expected to increasingly accept remote support and delivery of services as opposed to on-site delivery of services, which until now had been considered imperative for the execution of large and complex contracts.”
The Indian IT services industry has come across as being sensitive about the need of the workforce. TCS has indicated that promotions will continue, although understandably, salary increments have been deferred. This approach is likely to be consistent across all Indian IT services vendors, as they typically tend to follow similar practices when it comes to appraisals.
Singh concludes: “Steps like these are expected to keep the morale of the workforce high amidst these challenging times. While the next fiscal will undoubtedly be very challenging, there are plenty of positives for the Indian IT service industry, which has proven itself to be resilient time and again.”
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