The Hindu Business Line : Discretionary IT spend may see ‘significant’ cuts

Mumbai, April 22 Tata Consultancy Services (TCS) will keep a close watch on every large financial services firm in the US for at least the next couple of quarters, as there could be a significant cut in discretionary IT spending by specific companies reeling under the impact of the US credit crunch.

“Companies that have been impacted most by the sub-prime crisis will decide on their discretionary IT spend for the fiscal on a per-project basis. This may be a departure from the trend wherein companies earmark discretionary IT budget for the entire year,” Mr N. Chandrasekaran, Chief Operating Officer and Executive Director of TCS, told Business Line.

For the banking and financial industry as a whole, the IT spend is expected to dip by ‘a couple of percentage points’.

The BFSI (banking financial services and insurance) space accounts for more than 40 per cent of revenues for the Indian IT industry, according to Mr Ruchir Desai, IT Analyst, PINC Research.

TCS on Monday had announced a muted bottom line growth of 4.15 per cent for the fourth quarter ended March 2008.

This is primarily on account of two of the company’s top 10 clients delaying or postponing engagements that were supposed to be executed in the quarter.

The pricing environment for the quarter also suffered, on account of the ‘free transitions’ that TCS did for the two customers.

“Free transitions mean taking over some of our customers’ applications from either their current operations or from some of their existing vendors. We do not get paid for these transitions upfront, but the payment is factored in the pricing post the transition,” added Mr Chandrasekaran.

Since the transition was free, the company took a hit on its ramp-up initiatives in the quarter.

Payments for these engagements will kick in the latter part of the first quarter of this fiscal, added Mr Chandrasekaran.

Though companies are delaying outsourcing decision making, TCS is optimistic that clients will leverage off shoring to cut costs that are related to the actual running of the business.

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