People are being laid off and factories are being shut down as demand for products and services reduce across sectors such as automobiles and FMCG. But not the IT sector.
In fact, IT is one of the few sectors that is bucking the trend even as uncertainty looms when it comes to client spending globally. The experience of having weathered multiple slowdowns in its journey and strong financials will keep the sector afloat, say experts.
In a recent interaction with Moneycontrol, Kris Gopalakrishnan, co-founder, Infosys, said, “IT sector is an exception and doing extremely well.”
The statement is not without any basis. Case in point are the robust deal bookings the IT majors witnessed.
Robust pipeline
In March 2019, HCL Tech renewed its deal with Xerox for $1.3 billion for a seven year period. It also bagged 12 large deals for the quarter that ended on June 2019. HCL Tech had given revenue guidance of 14-16 percent in constant currency terms.
TCS’ reported $5.7 billion deal win in the first quarter of FY20 compared to $4.9 billion in FY19 for the same period. The company is confident of achieving its margin guidance of 26-28 percent.
Infosys reported its biggest deal wins of $2.7 billion for Q1 and even raised its revenue guidance to 8.5-10 percent, up from 7.5-9.5 percent it gave in Q4 FY19 in the light of strong deal momentum.
In addition, the second quarter saw large scale deal wins for IT majors. For instance, Wipro won $300 million digital transformation deal from ICICI bank. TCS and General Motors had also inked a deal to work on future mobility. According to reports, the deal is worth $600 million.
The IT majors during their first quarter results announcement said that they are confident of meeting their guidance despite uncertainties.
Looming uncertainties
Globally there are uncertainties with regards to client spending, especially in the banking and financial verticals, one of the biggest verticals for major IT firms. However it is neither new nor big enough for the IT majors to worry about.
The sector has seen multiple slowdowns since the 1990s and in the first decade of the century and it was able to weather them well with the right leaderships decisions.
Also, the Indian IT firms are highly profitable. Most of them have zero debt and lot of cash on their balance sheet.
In addition, the digital transformation of IT firms is also a driving factor that will keep them insulated from slowdown pangs.
Nitin Rakesh, CEO, Mphasis, an IT service firm, pointed out that despite the slowdown or because of the slowdown, firms are more than willing to invest in IT to improve efficiency and cut down costs.
“Because that’s (technology adoption) an irreversible phenomenon. If anything they (clients) will say, let's squeeze my core business because I don’t want to spend any money there. So that gives me an opportunity to accelerate my digital spend,” he added.
Also in terms of domestic market, the slowdown is unlikely to impact the IT sector since business from Indian market is not very significant. For most IT services firms in India, revenue from India operations account for about less than 10 percent of the overall revenue.
“So I’m very optimistic about the IT industry, which is still a growing industry according to NASSCOM data,” Gopalakrishnan added.
Employment generation
The growth of IT is critical as it is the second largest employment generator in India. According to a recent employment report by CARE ratings, the sector will employ close to 12.30 lakh people in 2019, up 8 percent from 2018. This number in only next to the banking sector that employs 12.60 lakh people.
This reflected in the hiring growth in the major IT firms as well. FY19 saw positive sentiment return as IT majors went on a hiring spree after a lull in the last couple of years.
TCS saw the highest ever recruitment in the last five years for its first quarter ended June 2019. It gave offer letter to close to 30,000 freshers in the first quarter.
Some challenges
However there is word of caution. As positive the IT firms are, the major challenge is employee skilling, said Supaul Chanda, Business Head, Teamlease Digital, an IT staffing firm. Employees who are unable to upskill are being let off and those with new age skills are hard to find.
In a way what the IT sector is facing is not the recession in terms of business but of skills, he added.
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