Covid-19 pandemic to hit Indian IT-BPO industry hard

Our Bureau Hyderabad | Updated on April 10, 2020

Growth rate may dip to 3-5% this year: ICRA

As it continues to rattle countries and economies, the coronavirus is expected to hit the Indian IT and BPO industry quite hard. 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.

Projected fall in the growth rates of the US and the European Union would 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 going to suffer as the capacity of clients come down.

Besides, the coronavirus impact would also weaken discretionary spending.

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

Revenue margins

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. ICRA said the margins would be adversely impacted as growth slows down in the first half of FY 2020-21.

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

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

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

The BFSI sector contributes about 30 per cent of 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 will 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 on client locations, at least 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,” said Jain.

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

Published on April 10, 2020

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