August 2023 has turned out to be a lucrative month for Tata Consultancy Services, Infosys and HCL Tech.
In a report, equities research firm BNP Paribas pointed to the greenshoots: “Announcements of deal wins in the IT services sector were slightly higher than in the previous month. The three-month rolling average of deal signings fell a bit. In recent weeks, mega deal wins have increased significantly. This gives us comfort about a recovery in 2HFY24 and a strong FY25, helped by the ramp-up of large cost optimisation deals and the bottoming out of macroeconomic concerns.”
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Globally, the IT sector has reported 13 major deal wins, led by announcements in North America (6), followed by Europe (5) and the Rest of the World (2). The majority of deals were in the areas of cloud, automation and artificial intelligence (AI).
Indian IT companies HCLT (4) and TCS (3) were the most active companies over the past month. Some key deal wins were HCLT-Verizon, TCS Athora and DXC-Jollibee Foods
“Among the mega deals announced, INFO won a $2b deal from an existing strategic client, to bring AI-powered digital entertainment to customers worldwide. HCLT announced that it would be Verizon’s primary Managed Network Services (MNS) collaborator in all networking deployments for global enterprise customers. The total contract value of this six-year deal is $2.1b. We continue to believe that technology demand should be relatively resilient, as reflected in the recent large deal signings,” the report added.
Could this mean that the woes of the IT sector are finally abating? A report by ICRA, released around the same time, expects a moderate revenue growth of 3-5 per cent in USD terms (for its sample set) in FY2024, lower than ~9.2 per cent YoY growth in FY2023 owing to persistent uncertainty in the key markets, resulting in pauses and deferral of non-critical projects and slowdown in discretionary IT spends by key sectors such as BFSI, retail, technology and communication.
Moreover, the operating profit margin (OPM) for the sample set is expected to decline by 70-100 bps in FY2024, due to lower operating leverage.