Defence cos placing more orders with IT cos

Bengaluru: Rising conflicts across the world is giving fillip to the defence industries, which are increasingly spending more on technology. Experts said though Indian IT or engineering services firms don’t directly work with global defence companies on their core operations, but partner with the many of the global defence firms in transforming their technology operations.

“Indian IT firms typically don’t work on the defence side, but work on the commercial side of these companies. When defence companies win deals, they usually do offsets from which Indian IT companies benefit. As the world is going through a volatile environment with war raging on many geographies, the demand for defence equipment is on a rise. Therefore, these defence companies are not under any pressure to cut cost (in the technology area) like many other corporates. So, there is definitely a second order benefit to Indian IT industry from such conflicts,” Pareekh Jain, an IT outsourcing advisor & Founder of Pareekh Consulting told the BizzBuzz.

Defence stocks across the US and European economies have seen an upward trend since war broke out between Russia and Ukraine. The 54 U.S.-listed, publicly traded companies found in the SPADE Defense Index now have a total market capitalization of more than $1.25 trillion. Investment funds have seen their assets under management grow significantly in the past two years since the war began.

After conflict between Israel & Hamas broke out last month, global defence stocks have again seen a fillip. The iShares US Aerospace & Defense ETF, which tracks companies including Raytheon, Lockheed Martin, Boeing, General Dynamics and Northrop Grumman, has surged by about 7 per cent since the initial attacks on Israel on October 7, 2023.

Importantly, Indian IT firms are working with most of these defence companies on their digital transformation initiatives. Especially, aerospace players like Boeing, Safran, Airbus and others have strong technology partnership with Indian IT and engineering services companies. Though many deals are not in the public domain, Indian IT firms also work with vendors of companies like Thales, Lockheed Martin, General Dynamics among others as IT partner.

According to sources in the know, there are limitations for Indian IT firms to directly work on the defence operations of these companies as several qualifications need to be satisfied. “This is one of the areas in which Indian IT firms are not still big as many criteria need to be satisfied for operating as a vendor to defence firms,” Jain added.