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Last Updated : Apr 03, 2020 11:43 AM IST | Source: Moneycontrol.com

COVID-19 impact | IT outsourcing business takes a hit as US, UK enterprises cut back on operations

Slowdown in sectors has cut demand for support services which form 60% top line of IT companies

Parked Delta Airline planes (Image: Reuters)
Parked Delta Airline planes (Image: Reuters)

Indian information technology (IT) segment is set to take a hit as force majeure clauses due to the coronavirus (COVID-19) pandemic have either halted or slowed down sectors serviced by these companies, Business Standard reported.

Indian IT companies provide application and maintenance services to firms in the United States, the UK and Europe and while there have been no contract cancellations so far, many clients have asked for reduced support, a mid-tier IT services company official told the paper.

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These firms usually pay on the basis of service staff strength, so when the numbers reduce the billing is affected too. “This may be a precursor to price negotiations over the coming quarters,” the source added.

An IT outsourcing advisor backed this saying, contracts signed in January and February are good to go, but ramping up these deals would take time.

This is a significant development as these services contribute as much as 60 percent of Indian IT firms’ top line and reduction the support—hence billing—will affect revenue. Travel, hospitality, oil & gas, and manufacturing which are some of the worst-affected sectors, will likely trim IT spend – impacting 10-12 percent of export revenue, a neat $15 billion.

Among airlines, Delta Airlines has already said it will reduce expenditure, while American Airlines, Southwest Airlines, JetBlue and United Airlines have hinted of the same. Among oil companies, Exxon Mobil, Chevron Corporation, BP, Royal Dutch Shell, and Total SA are also likely to cut expenditure as oil prices plummet.

The IT industry is expected to grow by 4 percent in the current fiscal, but revenues are likely to fall, according to brokerage firm Anand Rathi.

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First Published on Apr 3, 2020 11:43 am
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