Global cos delaying hi-tech IT deals as slowdown looms
Global clients turn more cautious on discretionary IT spend and it results in delays in deal closures
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- Rising oil prices propelling inflation further high
- Price rise eating into consumer purchasing power
- It's impacting the spend on retail segment
- This is forcing retailers to hold back investment in technology
- As a result, several sectors retail, mortgage and telecom deferred projects
Bengaluru: Global enterprises are showing some signs of deferring decisions with respect to discretionary spending with verticals like hi-tech witnessing slow growth during the July-September period for many Indian IT firms.
Spend on hi-tech verticals is usually discretionary in nature and fears of global slowdown is prompting clients to hold back spend in these areas.
"In smaller verticals like hi-tech, we are seeing some increasing cautiousness amongst clients around discretionary spend and, consequently, there have been some delays in deal closure," Nilanjan Roy, Chief Financial Officer at Infosys, said in the post-results analyst call.
Similarly, engineering services firm L&T Technology Services has also flagged some delay in closing deals in the hi-tech vertical.
Apart from vertical, IT companies are also seeing some indication of slower decision making in retail, mortgage and telecom verticals. High inflation owing to rise in oil prices across the globe is eating into the buying power of people. This is impacting the spend on retail segment, forcing retailers to hold back investment in technology.
Similarly, US mortgage market is going through a lot of turmoil in recent months. As interest rates inch up in the US, the housing market is facing a demand slowdown part from foreclosures. This is leading to slowdown in spend among financial institutions providing mortgage loans.
"We believe a slowdown in discretionary IT services spend around the growth and transformation agenda will be quite material and something not yet completely reflected in the streets double-digit revenue growth forecast for the industry for FY24," Goldman Sachs said in a note.
Despite reporting sound growth numbers in the second quarter ended September 2022, Indian IT firms showed cautiousness with respect to prospects in the second half of FY23 and FY24.
"We have also seen some sporadic instances of delayed decision-making on new deals. Those apart, clients have been telling us that even if their business outlook changes over the next few months for the world, technology will be one of the last areas to be impacted," Rajesh Gopinathan, CEO of TCS has said.
Amid fears of reduction in technology spend, Gartner recently said that worldwide IT spending is projected to be $4.6 trillion in 2023, an increase of 5.1 per cent from 2022.
"Economic turbulence will change the context for technology investments, increasing spending in some areas and accelerating declines in others, but it is not projected to materially impact the overall level of enterprise technology spending," Gartner said.
