Discretionary tech spend far cry in IT

We are seeing an uptick in large digital transformation deals, which are mostly focused on transforming old estates to reduce cost. A few are focused on building new platforms, but these are in the minority and we don’t see signs that the build new platform sector is showing signs of (any) significant growth - Peter Bendor Samuel, CEO of Everest Group, tells Bizz Buzz

Global Odds

♦ An uncertain US economy remains the top risk

♦ And it’sprompting enterprises to hold back technology spend

♦ Current digital transformation programmes are cost-focussed

♦ Investments in new platformsare rare

Bengaluru: Global IT outsourcing industry is witnessing some uptick in the digital transformation deals, but these are more focussed on cost savings, which is a sign that discretionary spend remains a far cry.

“We are seeing an uptick in large digital transformation deals, which are mostly focused on transforming old estates to reduce cost. A few are focused on building new platforms, but these are in the minority and we don’t see signs that the build new platform sector is showing signs of (any) significant growth,”Peter Bendor Samuel, CEO of Everest Group, aglobal consultancy firm, told BizzBuzz.

He also said that discretionary spend remained muted at this point of time. “At this time discretionary spending is muted and it is likely to stay that way for the next few quarters. Wherever, there are green shoots; they looked to be focused on cost take out programmes, which are not usually classified as discretionary spending,”Bendor Samuel added.

During the first quarter earnings, many company officials of Indian IT firms have indicated that spend on key verticals like BFSI (banking, financial services & insurance) is coming back. This has created hopes of discretionary spend coming back in coming quarters.

However, analysts point out that uncertainty in the US economy, especially with related to recession, is now prompting enterprises to hold back technology spend.

“It is still unclear if the US will have a soft landing or if we will go into a recession. There is significant debate on this issue with most large firms very much in a defensive position, resulting in postponed projects and very little discretionary demand for IT projects. Inflation is slowing, but very slowly and it is likely that the Fed (the US Federal Reserve) will keep interest rates high enough to continue to slow the economy,”Bendor Samuel said.

In recent weeks, prediction about the US economy has led to routs in the markets globally. While equity markets globally faced a slump owing to the US job data earlier, last week saw a sharp recovery as recessionary fears receded.

However, most experts are still not sure the direction of the US economy amid the upcoming presidential elections in November this year.

Experts said all the hopes of recovery during the second half of ongoing financial year will be a reality if the US economy stays strong.

Last week, both Nasdaq and Nifty IT index had a stellar run after investors took exposure in technology stocks on the hopes of the US Federal Reserve’s likely interest rate cuts in the near future.