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Moumita Bakshi Chatterjee
K. Bharat Kumar

New Delhi, Nov. 2 Indian IT vendors’ revenues from the financial services industry are growing, as is evident from the IT majors’ September quarter results.

Some see this as an incipient sign of stability in the troubled vertical, while others caution it may be a “one-time window” thrown-open by post-merger integration opportunities within BFSI in the US, as bank and financial institutions there consolidated after the financial meltdown.

IT majors such as Infosys, TCS, Wipro, HCL and NIIT Technologies have seen rise in revenues from clients in the Banking, Financial Services and Insurance (BFSI) vertical, for the just-ended quarter, compared with the June quarter.

The quarter ended September 2008 had been a better quarter for most of these IT vendors. It was in that month that investment banking firm Lehman Brothers collapsed, setting off a chain of events that sent the global economy into a downward spiral.

The figures in the table suggest a revival of sorts in the last three quarters, but that opinion is not pervasive.

“The slowdown began with the BFSI sector, but it is also the first sector to show the initial signs of stability. Demand in BFSI is driven by a number of opportunities linked with mergers and acquisition and integration, and also some amount of rationalisation work, both in application and infrastructure space,” said a TCS spokesperson.

For HCL Technologies – which announced its first quarter results on Wednesday (it runs a July to June fiscal) – financial services has gone up as proportion of the overall revenue basket, compared with the April-June quarter; it has grown in absolute value.

“BFSI for us has sequentially grown 10 per cent this quarter which is higher than all out peers put together. Last quarter, BFSI had grown 13.3 per cent sequentially. So 13.3 per cent sequential growth followed by 10 per cent sequential growth...for us, it is going strong,” the HCL Tech CEO, Mr Vineet Nayar, said.

Mr Nayar, however, felt that the growth was riding on market share gains and vendor consolidation rather than increase in customer spends.

The global economic crisis had severely hurt the growth of the Indian IT/BPO exports industry that derives nearly 80 per cent of its revenue from the US and the UK markets; and nearly 40 per cent from the Banking and Financial Services (BFSI) space.

As global financial markets slipped into a recession, nervous clients deferred IT purchases, slashed IT budgets or renegotiated rates.

But now the organisations in the BFSI segment – which have gone through mergers and acquisitions – are taking decisions to rationalise technology systems and platforms, leading to opportunities for IT companies like Infosys in the BFSI as well as in system integration space.

“We are also seeing an interest in the asset management space and in regulatory compliance, risk and internal audit,” an Infosys spokesperson added.

The IT bellweather had earlier stated that post-merger integration had opened up prospects for commissioning of new systems, de-commissioning of old systems – the opportunities not just in technology but also change management, processes and organisation training.

Its cross-town rival Wipro has seen the share of BFSI in the overall revenue slide quarter-on-quarter, but in absolute terms the revenue from this space is higher than in the quarter ended June 2009. NIIT Technologies is another company witnessing good traction in the BFSI space.

“It has resulted in good order book and pipeline, particularly with regard to insurance. Overall BFSI has been improving, and for us the uptick in this space has happened from this quarter,” NIIT Technologies CFO, Mr K.T.S. Anand, said.

Analysts expect BFSI to be the first to recover among verticals knocked-out in the slowdown storm. “BFSI has historically been more mature in leveraging offshoring capabilities,” said a Mumbai-based analyst who did not wish to be named.

According to Mr Gaurav Dua, head of research at Sharekhan, the growth in BFSI has been higher than the rest of the verticals, for many players in the IT pack. He agreed that consolidation of banks was resulting in additional work.

“Last year in Q2/Q3, things had come to a standstill, but now the situation is improving,” he said.

The Indian IT sector will mimic the recovery pattern in the West, starting with BFSI clients increasing their spends and then move on to other sectors, possibly with a lag, says Mr Siddharth A. Pai, Partner and Managing Director, TPI.

“Almost all the US and European banks have been reporting a return to the black. Many have done this with State funding and the BFSI sector appears to have stabilised. This hasn’t yet translated into large scale recovery in other sectors of the economy, which is worrying,” he said.

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