IT companies see deal momentum slowing down in Q2

The client-addition data of the top-4 IT firms for the September quarter of FY23 fiscal indicate early signs of business slowing down in the West. TCS, HCL, Infosys and Wipro saw a quarter-on-quarter decline in net client additions.

Analysis by Care Edge indicates that IT companies are seeing a dent in their demands for Q2 FY23. In the over $100-million category, net client additions by the top IT firms were down to -5, whereas in Q1, the total client addition was only 3 additional ones. In other categories of $1 million, $10 million and $50 million, there was a year-on-year decline. In the case of $1 million, companies reported an aggregate net client addition of 68 in Q2 FY23 versus 97 in Q2 FY22. Similarly, the numbers for $10 million were (17 versus 31) and for $50 million (10 versus 18). 

This indicates that demand softening has already started even before Europe enters winter season. IT firms have also cautioned demand softening in the near term. While IT companies continue to maintain that the demand scenario remains strong despite recessionary headwinds on the horizon, the numbers suggest otherwise. businessline had reported previously that after a strong season of hiring in fiscal 2022, IT firms have drastically reduced hiring this quarter despite mounting attrition. Meanwhile, active jobs in IT services are also seeing the largest slump in 17 months, going by certain reports.

IT companies reducing their bench size is the first sign of the impact of the looming economic conditions in the West, according to experts, especially since firms usually bring on new hires in anticipation of the projects they will be executing in the future, which will require a larger number of employees. 

However, despite the initial numbers, most IT majors state that they saw robust client additions for this quarter as well. Salil Parekh, Chief Executive Officer of Infosys, said: “We have had very good traction in Europe for the last several quarters and that has shown again in this quarter’s growth number. We continue to see that the pipeline of large deals is strong, but we are also cautious and watching the macro development.”

However, Wipro chief Thierry DelaporteIn warned: “Speaking to our clients every day, we are seeing a change in the level of optimism. As businesses around the world are dealing with inflation pressure with geopolitical turmoil, with the energy crisis and also the rising interest rates.” However, he maintained that the pipeline of large deals was robust at present for Wipro. Yet, in the present macro conditions, DelaporteIn predicts a muted sequential revenue growth of of 0.5 per cent to 2.0 per cent, which will translate to growth of 10 per cent to 12 per cent year-on year in constant currency terms.

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