IT Cos Pin Hopes On Discretionary Spend

The demand environment remains cautious with clients prioritizing spend on initiatives oriented toward cost optimization, which offers immediate RoI. The management though is hopeful of some recovery in Q4/FY25

Bengaluru: Global clients’ focus on cost savings continue with less spending on discretionary technology areas. However, upcoming holiday season may spur investment in discretionary areas, management of Tata Consultancy Services (TCS) said in the Q2 FY25 analyst call.

According to the Tata Group company, there is not much change in the demand environment as of now though BFSI (banking, financial services & insurance) vertical is showing signs of turning around.

“The demand environment remains cautious with clients prioritizing spend on initiatives oriented toward cost optimization, which offers immediate RoI. The management though is hopeful of some recovery in Q4/FY25, led by gradual easing of inflation and interest rates, and a good holiday season,” Brokerage firm, Emkay Global said in a report.

“Consumer spending during the coming holiday season may lead to uptick in discretionary and overall tech spending,” the report noted.

In the second quarter of ongoing financial year, TCS reported 1.1 per cent rise in its revenue Quarter-on-Quarter (QoQ) on constant currency basis.

“We saw the cautious trends of the last few quarters continue to play out in this quarter as well. Amidst an uncertain geopolitical situation, our biggest vertical, BFSI showed signs of recovery,” said K Krithivasan, CEO & MD of TCS.

Management highlighted some signs of demand improvement, notably in BFSI in North America during the conference call.

“BFSI is seeing signs of improvement with growth in North America, Europe, and UK led by banking, insurance, and risk and compliance, while capital market was a laggard,” the report said.

The Q2 performance of TCS has indicated that despite the focus on cost saving deals, there may be soon a turnaround in the discretionary spend going ahead.

Indian IT industry has been witnessing tepid technology demand for the last one and half years after high inflation in the US and Europe made enterprises’ cautious on spending. This has led to a situation wherein cost takeout deals have come in large numbers, while digital deals have been few in number.

Due to lesser number of digital deals, companies with more share of digital revenue have faced revenue and margin pressures in the past quarters.

However, employee addition for the second consecutive quarter by TCS indicates Indian IT firms are now getting the supply side ready for a possible demand uptick.

TCS reported a net headcount increase of 5,726 employees in the second quarter of FY25, following a similar rise of 5,452 in the first quarter. TCS’ total headcount stood at 6,12,724 by the end of second quarter.

Earlier, Accenture added more than 24,000 employees in the fourth quarter of 2024 ended September. Analysts are of the opinion headcount addition by two IT majors provide positive prospects of demand environment going ahead.