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Last Updated : Oct 10, 2019 08:04 PM IST | Source: Moneycontrol.com

Can TCS reach double digit growth for FY20 amid market volatility?

The decline in BFSI segment will impact the overall performance of the company, given that it is the single largest vertical for the company, accounting for about 40 percent of overall revenue.

 
 
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As growth from banking, financial services and insurance (BFSI) segment is under the cosh, it will be difficult for Indian's largest IT firm TCS to retain its double digital growth, feel experts.

For TCS, banking and financial services and insurance (BFSI) growth in the last couple of quarters have been reducing. From recording 11.6 percent growth for the quarter ending December 2018, it declined to 9.2 percent in the first quarter of FY20. For the second quarter, the growth further declined to 8 percent to Rs 15,427 crore. The overall revenue for the quarter stood at Rs 38,977 crore.

The decline in BFSI segment will impact the overall performance of the company, given that it is the single largest vertical for the company, accounting for about 40 percent of overall revenue.

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This comes at the back of softness in European banks and capital markets in the US, which the TCS management pointed out in the last quarter as well.

Rajesh Gopinathan, CEO, TCS, in a press conference after the Q2 results announcement, explained that while the insurance is doing well, the same cannot be said for its larger banking clients. “Regional banks in Europe and smaller banks in the Northern America are doing well. But larger banks are under pressure,” he added.

According to the TCS management, given their size, larger banks are hostage to macro-economic volatility and that will impact the IT spending. For instance, there are uncertainties surrounding Brexit, which puts a pressure on banks. In addition, certain governments have brought in new standards for banks such as payment systems. This again weighs on the banks’ IT spend as these clients want to wait and watch before investing. All these are impacting the BFSI growth.

“Yes, the H2 (performance), which is seasonally weak, needs to be much higher than in H1. But right now we do not have the visibility,” Gopinathan said during the press briefing.

However, Gopinathan pointed out that the company has a strong deal pipeline. TCS reported the strongest deal pipeline in the last six quarters at $6.4 billion. Of the total deal, BFSI accounts for the largest chunk of about $2.2 billion.

But market watchers are not convinced. For one, like Gopinathan pointed out H2 is seasonally weak quarter for the IT major. According to experts, banking and financial services will continue to show weaker growth. In addition, markets such as West Asia, Japan and Asia Pacific show weaker growth.

"At this rate, it will be difficult for IT major to reach the double-digit growth in FY20," said an analyst in an interview to CNBC-TV18 post the results announcement.

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First Published on Oct 10, 2019 08:04 pm
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