IT sector to revive in second half of FY21

K Giriprakash Bengaluru | Updated on April 05, 2020

Job losses may be not be as bad as feared, say analysts

The IT sector may go through a temporary setback during the first half of FY21, but is expected to recover during the second half, said analysts and executives at leading firms.

There could be job losses at mid and small-tier companies, but it won’t be significant, they said.

“While the scare of rising global infection and death is still playing out, investors seem to be ignoring some of the positives such as the quick bounce-back in China after the flattening of the Covid-19 curve,” said Anand Rathi Research in a note to investors.

The note said that Indian IT growth in FY21 could be 3 per cent lower, assuming a recovery in the second half of FY21 and, therefore, may not see a reduction in headcount. Most IT companies have responded to the crisis by moving 90 per cent delivery home, resulting in 5 per cent loss in productivity days.

Some of the top executives at major IT firms across the country, who did not want to be named as some of these companies have slipped into the silent period ahead of the Q4 results, said that there could be a short-term impact on the revenues, but in the long term certain deals may get re-sized.

“There is obviously less visibility ahead, but going forward, the impact will be far lesser,” said one of the executives.

Larger firms (Mphasis, LTI, Mindtree) have been more efficient; smaller companies have been hit hard, given their concentrated delivery. The problem is more on the demand side than on supply side. On a net basis, we assume normalisation (no pent up) in FY22, the note said.

Top IT firms

With regard to Infosys, an analyst said the company hasthe ability to efficiently manage from remote systems to ensure the timely delivery of outsourced business.

“The Covid impact has been seen majorly on consulting business while outsourcing business still remains robust. Direct exposure to the Covid-19-affected regions and verticals is sub 1 per cent, and it has not seen any meaningful delivery disruption either,” said Axis Securities in its March 30 note.

The large deal TCV (total contract value) data has been very healthy for the first nine months of FY20 at $7.3 billion, up 56 per cent on YoY basis, which gives comfort to growth in the near term.

One of the major reasons why Infosys remains impact-free from such huge disruptions is because its engagement with its partner network has expanded beyond certifications to co-innovation centres, building industry solutions, ISV partnerships, and joint sourcing of deals.

These partnerships play a significant role in implementation, rollouts and upgrades, validation and support services. The recent deal trend continues to be healthy for Infosys, and is reflective of the traction in manufacturing/industrial and retail and CPG verticals.

Infosys also received various digital transformational deals worth more than $1.8 billion in recent quarters. We believe the Covid-19 outbreak will create huge opportunity across geographies for Infosys to post strong organic growth over different verticals, said the note.

The note added that US companies exposed to BFS (banking, financial services) and telecoms are likely to see lower cuts than in retail, travel and energy. Banking services are considered essential; hence, the sector is likely to partly escape global lockdowns.

Published on April 05, 2020

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