Covid-19 pandemic to hit IT-BPO industry hard

Our Bureau Hyderabad | Updated on April 09, 2020

As it rattled countries and economies, the Novel Coronavirus is expected to hit the Indian IT and BPO industry very hard.

Projected fall in the rates of GDPs of the US and the European Union will have a direct bearing on the Indian IT industry, as those markets contribute over 80 per cent of their export revenues.

All the key verticals of BFSI, oil and gas, manufacturing and retail are likely to suffer as the ability of clients come down and so will the ability of the companies in IT, too. Besides, the Coronavirus impact would also weaken the discretionary spending.

The investor information and credit rating agency ICRA has estimated that the growth rate of IT services sector this year would dwindle to 3-5 per cent, as against the earlier estimate of 6-8 per cent.

“The global spread of the coronavirus is resulting in simultaneously supply and demand shocks. We expect these shocks to materially slow economic activity,” Gaurav Jain, Vice President of ICRA, said.

On the demand side, developed economies which contribute to majority of the revenues will see delayed off-take of scheduled new projects, reduced discretionary spend as well as overall lower spend owing to sluggish economic growth. It said the margins would be adversely impacted as growth slows down in the first half of the financial year 2020-21.

It, however, felt that the IT industry could gradually recover in the next financial year. But, felt that the credit profile of companies is expected to remain stable.

“Credit outlook remains stable led by healthy free cash flows cushioning short term disruptions,” the ICRA forecast said.

BFSI sector

The BFSI (banking, financial services and insurance) vertical, which is already seeing weakness across US and Europe, will further be impacted owing to short term impact of coronavirus on economies.

The BFSI sector contributes about 30 per cent of the total revenues to the industry.

The other key sectors such as oil and gas and manufacturing will also be impacted because of record low crude oil prices and reduced consumption levels.

Travel, hospitality and retail to be impacted as people will travel less and restrict spending to essentials.

Supply side issues

The IT industry is also expected to face challenges in the form of travel restrictions and movements.

This could impact companies’ ability to position staff at client locations, specially in the crucial initial stages of deploying solutions.

“New projects to be commissioned will be delayed by minimum of 3-6 months while projects in pipeline will also face delays,” he said.

The ICRA feels that bigger companies with diversified presence across sectors can manage such headwinds better compared to mid-size companies.

Published on April 09, 2020

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