Indian software exporters pinning hopes on second US stimulus

Venkatesh Ganesh Mumbai October 28 | Updated on October 28, 2020

New package seen to kickstart another round of tech spending, and more outsourcing deals

Indian software exporters expect a second round of stimulus from the US government, which would indirectly kickstart another round of tech spending, to result in more outsourcing deals.

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Software exporters across the board have posted strong quarterly results in the September quarter, with a jump in margins, revenue growth and healthy deal pipeline.

Sample this. TCS had a total contract value (TCV) of deals worth $8.6 billion for the September quarter and Infosys had large deal wins of $3.1 billion. This apart, Infosys and HCL Tech have raised their revenue guidance for the fiscal.

The broader market has also been reflecting this bullishness. During the second quarter of FY21, the BSE IT index surged 31.7 per cent, outperforming the BSE Sensex, which gained 9 per cent.

Also read: Which stock is your best bet among the top four IT services companies?

First round of stimulus

This bullishness needs to be seen in the backdrop of the first round of stimulus by the US government. In March, the US came out with a $2-trillion stimulus package, the largest economic stimulus in its history, in response to the economic impact of Covid-19. This has trickled down and another round of stimulus will help the growth momentum continue in these challenging times, opine industry watchers.

“It should be a continuation of the benefits from the first round as there is already evidence to show that companies are harnessing technology on a larger scale,” said Madan Sabnavis, Chief Economist, CARE Ratings.

Also read: IT majors step up hiring in Q2 as outlook improves

Software exporters vouch for the stimulus, too. “It has helped Indian IT to gain marketshare, which was getting tough due to the pandemic,” said R Srikrishna, CEO, Hexaware. Sandeep Kalra, newly appointed CEO of Persistent Systems, pointed out that it keeps small and medium sized businesses (in the US) going and since digital delivery has increased everywhere, tech spending is bound to go up.

Critical BFSI deals

While this stimulus has had an effect since March, the continuing wave of Covid-19 and no immediate possibility of a vaccine have led to talk of another round of stimulus. This is especially the case in BFSI-related outsourcing deals, which have returned after several quarters of consecutive declines. BFSI contributes around 40 per cent of the average software exporter’s revenues. Some exporters have alluded to this as the December-ended quarter coincides with furloughs.

A balanced focus on targeted stimulus for small businesses and national and global demand revival for large corporations in the US will give them the confidence to continue investing in a digital future, according to Ganesh Natarajan, Chairman, 5F World and former CEO of Zensar. According to Raja Lahiri, Partner, Grant Thornton India, another round of stimulus would help in sustaining the momentum for software exporters.

But not everybody believes that the stimulus was the key factor in driving tech spending. “The stimulus helped but companies have been wanting to embark on their digital journey and Covid-19 accelerated that,” said Manoj Bhatt, CFO, Tech Mahindra.

Published on October 28, 2020

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