Recovery in BFSI vertical likely in H2

Financial services sector is burdened with high interest rates. And because of the high interest rate, there is a wait-and-watch and kind of a pause on discretionary work in this sector. Normally, what I have seen based on the experience is, if there are one or two repeatable cycles of interest rate adjustments downwards, we will start to see the spend to come back - Ravi Kumar, CEO of Cognizant

Bengaluru: Demand environment in the financial services vertical remains challenging, but is likely to recover towards the later part of the year with reduction in the interest rates in the US.Cognizant management announcing the fourth quarter results said that demand environment remained challenging as of now with cost pressure holding back the discretionary spend among financial institutions.

“Financial services sector is burdened with high interest rates. And because of the high interest rate, there is a wait-and-watch and kind of a pause on discretionary work (in this sector). Normally, what I have seen based on the experience is, if there are one or two repeatable cycles of interest rate adjustments downwards, we will start to see the spend to come back. Discretionary is also tied to transformational work, that means transformational work, normally takes off when there is a period of certainty,” Ravi Kumar, CEO of Cognizant, said at the post results analyst call.

He also said that more investment in AI (artificial intelligence) domain could trigger discretionary spend in the BFSI (banking, financial services & insurance) vertical.

In the fourth quarter ended December, growth in the financial services vertical dipped 6.6 per cent year-on-year basis on constant currency term. Cognizant follows January-December financial year cycle.

Like Cognizant, its peers including Tata Consultancy Services, Infosys, Wipro and others have also seen negative growth in the key financial services vertical during the October-December quarter.Financial services is the largest vertical for most large IT players with more than 30 per cent of revenue coming from the vertical.

However, management of most companies were hopeful of a demand recovery towards the later part of this year on the back of possible interest rate cuts by the US Federal Reserve.

The US Fed had earlier indicated that three possible cuts in interest rates are likely in the current calendar year.

Apart from possible interest rate cuts, rising investment in the generative AI space has raised hopes about recovery in the demand environment.

“Today, we have over 250 early engagements that incorporate the use of generative AI. Some examples are creating a virtual coach for a diabetic patient for a pharma company, predicting the size of target audiences for a TV network, conducting sentiment analysis and summarization of user comments for a large bank among others. We have another 350 plus opportunities in our pipeline that we are planning to scale,” Kumar has said during the analyst call.