Large deals and discretionary spending in the IT sector are back with a bang and domestic vendors like Infosys, TCS, Wipro, HCL Technologies and Cognizant are major beneficiaries of this.
So indicates the IT outsourcing advisor TPI’s index, which covers outsourcing contracts of more than $25 million, for the December-ended fourth quarter of 2009.
The consultancy firm’s index shows that almost $25 billion of total contract value (TCV) were awarded to IT vendors between October and December, sequentially up 47% and by 8% year on year (YoY).
Annualised contract value or ACV was at $4.3 billion during the same period. Of this, about 20% is deemed to be discretionary, a significant improvement over start of 2009 when almost no discretionary spend was discussed. TPI expects this spend to climb up to 30% by end-2010 as global macro conditions improve.
Significantly, resurgence in spending is broad-based with deal wins happening across major vertical — banking, financial services and insurance, manufacturing and telecom — with a rise of 33%, 76% and 24%, respectively, in second half of 2009 compared to first half.
Analysts Mitali Ghosh, Pratish Krishnan and Kunal Tayal of Bank of America Merrill Lynch, term this as best quarterly performance in terms of the TCVs and ACVs since the second quarter of 2007-08.
“IT services outsourcing notched up the biggest quarter in past six years with signings amounting to $19 million, up 54% on a quarterly basis,” the trio wrote in their report brought out on Thursday.
And the share of the Indian software players in the global IT contract pie has become significant enough for them to be featured in the list of the companies which have won 10 or more contracts of over $ 25 million in 2009.
The top 5 large vendors with India-centric delivery centre —- Infosys, TCS, Wipro, HCL Technologies and Cognizant —- have found a place on the list of application development and maintenance (ADM) service providers by TCV. They were not on it in 2005.
Interestingly, HCL and Wipro are in the top 10 infrastructure service providers by 2009 TCV.
So, how do local tech firms view this piece of positive data after a year barrage of negative signals in 2009?
“Generally, companies are becoming comfortable with spending. Some discretionary spends are happening,” said V Balakrishnan chief financial officer of Infosys Technologies.
But the second largest IT company’s financial head peppered his optimism with words of caution. “The Chinese govt has put in about $1.8 trillion in their economy. So there’s a worry as to what happens when that money goes back. Also, in the US itself the recent announcement that the government would pull back some liquidity is another point of concern. So over all firms are comfortable now but are cautious as well.”
Wipro’s Rajendra Shreemal, head of investor relationship and treasury, says one of the reasons for surge in tech spending was that companies were refreshing technology.
“Primarily customers are taking out cost from operations by transforming their business with new technology platforms. This technology refresh cycle comes every 3-5 years. What is happening is customers are reducing the number applications being used and bringing down their costs. Indian companies are gaining from this move,” he said.
Shreemal says over the last five years, local tech vendors have acquired capability and scale to take on MNC vendors. “Their (domestic IT players) track record and experience are helping them win some really large global deals. Customers are now more confident working with them than before,” he said.
Early this week, even IT research firm Gartner revised its forecast for IT spending growth in 2010 to 4.6% from its previous prediction of 3.3%.
Diptarup Chakraborti, principal research analyst, Gartner India said that globally the increased spending on IT hardware is followed by rise in IT services. However, he said these are times of “cautious optimism rather than of unbridled joy.”
“Firms in BFSI, automotive and other sectors in the US had received TARP funds that have to be repaid. It would be interesting to see what that does to their spending after the repayment. Most of the spending last year happened on must-have projects rather than good-to-have or discretionary projects,” he said.
Source:http://www.dnaindia.com/money/report_for-it-cos-clients-loosen-purse-strings-and-how_1338140
