The Indian IT services sectors’ deal win momentum, which had been resilient so far, even amid market slowdown, has now become more sedate. In the third quarter, the top four IT majors saw a sequential decline in their Total Contract Value (TCV), as macro-headwinds still persist for the sector.
Tata Consultancy Services’ (TCS) TCV dipped from $11.2 billion in Q2 to $8.1 billion in Q3. HCL recorded new deal wins for the quarter, stood at $1.927 billion, lower from $3.969 billion, last quarter.
Further, Infosys’ TCV saw a steep decline from $7.7 billion in Q2 to $3.2 billion in Q3. To be sure, last quarter for Infosys was an outlier with multiple mega deals signed. Its cross-town rival Wipro’s deal wins stood the same as last quarter at $3.8 billion, its large deal contribution though was lower, from $1.3 billion in Q2 to 0.9 billion in Q3.
In this quarter, Infosys also saw termination of a $1.5-billion agreement with a global company. While the company did not underscore any particular reason for the fallout, at large, CEO Salil Parekh noted that their earlier wins and present momentum were good indications for the future. “The new deal wins in Q3 were related to cost efficiency, automation, consolidation, SAP rollout, cloud, and other areas across the portfolio,” he said.
Muted growth
Pareekh Jain, Founder of Pareekh Consulting, said, “The sequential decline in deal wins is because of lack of growth in the North America region, and BFSI, High-Tech and Telco sectors — which typically make significant contributions to deal pipeline.”
The slowdown is also because of the absence of mega-deals, which are high on TCV. However, this could be a positive development, as the mega deals were mostly cost-takeout deals — contracts preferred in a down market — and the lack of it indicates a shift towards mid-level digital transformation deals. This could be an early indicator of market revival, he added.
Omkar Tanksale, Research Analyst at Axis Securities, notes that the bigger challenge has been the revenue conversion of the deal pipeline, as deals hadn’t ramped up swiftly so far. Going forward, while Q4 might see a similar trend, with ramp ups of previous deals getting in place, subsequent Q1 will be better. “With client budgets reviving and key market and verticals looking up, the deal win momentum can be expected to held well,” he said.
However, companies remain sanguine and hold a positive outlook. Similar to Infosys, TCS CEO K Krithivasan had said, “There will be some ups and downs. But overall, we look at the pipeline and we look at the deals that we close and geographical spread and the size of the deals and the type of deals, and we are quite comfortable with the deals that we are getting in.”
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.