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

Our Bureau Hyderabad | Updated on April 10, 2020 Published 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

A letter from the Editor

Dear Readers,

The coronavirus crisis has changed the world completely in the last few months. All of us have been locked into our homes, economic activity has come to a near standstill. Everyone has been impacted.

Including your favourite business and financial newspaper. Our printing and distribution chains have been severely disrupted across the country, leaving readers without access to newspapers. Newspaper delivery agents have also been unable to service their customers because of multiple restrictions.

In these difficult times, we, at BusinessLine have been working continuously every day so that you are informed about all the developments – whether on the pandemic, on policy responses, or the impact on the world of business and finance. Our team has been working round the clock to keep track of developments so that you – the reader – gets accurate information and actionable insights so that you can protect your jobs, businesses, finances and investments.

We are trying our best to ensure the newspaper reaches your hands every day. We have also ensured that even if your paper is not delivered, you can access BusinessLine in the e-paper format – just as it appears in print. Our website and apps too, are updated every minute, so that you can access the information you want anywhere, anytime.

But all this comes at a heavy cost. As you are aware, the lockdowns have wiped out almost all our entire revenue stream. Sustaining our quality journalism has become extremely challenging. That we have managed so far is thanks to your support. I thank all our subscribers – print and digital – for your support.

I appeal to all or readers to help us navigate these challenging times and help sustain one of the truly independent and credible voices in the world of Indian journalism. Doing so is easy. You can help us enormously simply by subscribing to our digital or e-paper editions. We offer several affordable subscription plans for our website, which includes Portfolio, our investment advisory section that offers rich investment advice from our highly qualified, in-house Research Bureau, the only such team in the Indian newspaper industry.

A little help from you can make a huge difference to the cause of quality journalism!

Support Quality Journalism
This article is closed for comments.
Please Email the Editor
You have read 1 out of 3 free articles for this week. For full access, please subscribe and get unlimited access to all sections.