Disconnect between IT firms' BFSI growth in North America and bullish commentary

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While major Indian IT firms like Tata Consultancy Services (TCS), Infosys, HCLTech, and Wipro have highlighted the resurgence of demand in North America's BFSI sector for the quarter ended September 30, 2024 (Q2FY25), particularly in discretionary spending, the actual figures present a different picture.

For example, India’s largest information technology company, TCS, reported a 2.1% YoY decline in North American revenue in Q2FY25, suggesting that the positive market indicators have not yet translated into revenue gains. TCS Chief Executive Officer K Krithivasan had said in an analyst call, “BFSI in North America, we see all around growth.”

This disconnect was further amplified by management commentary indicating that while demand for efficiency and automation projects is rising, large-scale transformation deals are yet to materialise in the BFSI sector.

Similarly, Infosys’ share of North America also marginally declined. However, the management believes the financial services sector has seen good traction on the discretionary side.

While not commenting on the disconnect, experts said the positive commentary expressed by service providers around North America and BFSI stems from the nature of client conversations and macro indicators of the industry and region.

“This discretionary spending intent will translate to upward impact on revenue after going through the sales cycle and can take a couple of quarters to kick in,” Gaurav Parab, Principal Research Analyst, NelsonHall, told Moneycontrol.

This positive commentary also stems mainly from recent US Federal Reserve rate cut, with more expected in the coming months, which are likely to boost discretionary spending on projects that were previously stalled or considered non-essential within financial services enterprises.

Additionally, a decision by US government’s consumer protection agency – the Consumer Financial Protection Bureau (CFPB)- on finalising open banking rules, which kicks in from April 2026, is expected to increase IT services spending by banks, says Kriti Gupta, Practice Director, Everest Group.

“We anticipate significant growth in areas such as cybersecurity, identity and access management, and data privacy over the coming quarters,” Gupta said.

Also read: Mixed bag for TCS, Infosys, HCLTech, Wipro in Q2

Deciphering Data

Apart from TCS’ Q2 performance in North America, Infosys’ revenue share from the North American market declined 2.7 percent in constant currency (CC) terms. Nonetheless, share of financial services to the overall revenue fell marginally to 27.2 percent YoY in Q2 from 27.5 percent, in CC terms.

Infosys’ Chief Executive Salil Parekh, during an analyst conference call, noted that there’s “good improvement in discretionary spend”, adding that Q2FY25 continued to see robust spending from large U.S. banks.

“We see, still the focus is much more on the discretionary and then some cost efficiency program. We are still not seeing large transformation type of program,” Parekh said.

Noida-based HCLTech’s revenue from the financial services vertical decreased by 4.5 percent YoY to 20.5 percent, in CC terms. Its share of topline from the “Americas” market decreased sequentially to 65.1 percent from 66 percent.

“The demand picked up during the quarter (Q2). We talked about it in August-end, that Financial Services is definitely looking better from the discretionary spend perspective,” said HCLTech’s Chief Executive Officer and Managing Director, C Vijayakumar, while speaking to analysts at the conference call.

Wipro: The Outlier

Wipro’s approach to the US BFSI market sets it apart, as it relies its consulting subsidiary Capco, to capture discretionary spending opportunities in the sector. Chief Executive Srinivas Pallia highlighted that Capco’s core focus on discretionary projects is proving to be beneficial, signaling potential future growth.

Moreover, along with Capco’s consulting expertise and Wipro’s execution strengths, the overall result showed on the books. Wipro’s revenue from BFSI stood at 34.8 percent, increasing both sequentially and YoY.

Pallia remains confident that the discretionary spending Capco attracts will drive downstream revenue in the quarters ahead. “I would say at this point in time, I continue to be optimistic around the spend in BFS segment especially in the US.”

Overall, as North American clients navigate a landscape of easing interest rates and rising consumer confidence, Q2 revenue data highlights the ongoing wait for these optimistic projections to convert into tangible growth.

Amid persistent macroeconomic uncertainties in key markets like the U.S and Europe, major IT companies are shifting focus and ramping up investments in emerging markets, including India, Japan, the Middle East, and Latin America.

With plans to expand their footprint in these regions, they aim to tap into new growth opportunities throughout 2025.

Also read: IT companies bet big on India, Middle East for the next phase of growth