Surging SaaS projects bode well for Indian IT

Bengaluru: Demand uptick seen in the SaaS (software as a service) firms globally augurs well for Indian IT services firms as they have strong partnerships with these companies as part of their go-to-market strategies.

Experts and brokerage firms indicated that the bad time for the domestic IT services industry might be over as many of the segments started performing better as compared to last two quarters. “Most SaaS companies have reported June-July 2023 quarter revenue growth higher than their guidance and some have also upgraded full-year CY23 guidance, indicating improvement in demand despite elongated deal cycles,” ICICI Securities wrote in a note.

“Indian IT players have ‘sell-to’and ‘sell-with’ partnerships with global SaaS firms, which can be considered as a proxy for high-end digital services demand,” it added. In the June-July period, major SaaS firms including Servicenow, Workday, Snowflake, Atlassian, Datadog and Hubspot have reported June-July 2023 quarter revenue growth higher than their guidance. This reflected some improvement in the demand though deal flow is delayed owing to higher scrutiny from clients.

While Salesforce raised its guidance by 100 basis points to 11 per cent YoY growth in FY24 (ending January) due to strong demand momentum, Workday and Snowflake have retained their FY24 revenue guidance. Intuit and Atlassian have both guided their FY24revenue growth to be at similar level as FY23.

Notably, most big IT firms and mid-tier companies have not only partnered with SaaS companies to take both their offerings to clients, Indian IT companies have also trained a significant percentage of their staffers in these SaaS companies’ products to cash in emerging opportunities.

For instance, Persistent Systems has trained around 12 per cent of its staffers in Salesforce. Therefore, any turnaround in Salesforce’s performance augurs well for companies like Persistent Systems which have significant exposure to Salesforce.

“Given the improvement in sentiment, it will not be surprising if some of the Indian IT firms raise their revenue guidance in coming quarters. Because the hope that second half of current financial year will be better than the first half seems plausible,” Pareekh Jain, an IT outsourcing advisor & Founder of Pareekh Consulting, told Bizz Buzz.

While SaaS firms have started doing well, digital engineering firms still face the headwinds as clients hold back discretionary spend.

“Digital engineering companies like EPAM, Thoughtworks, Endava, Griddynamics and Perficient expect weak revenue growth in CY23/FY24. This indicates weakness in broader discretionary technology spend,” ICICI Securities said. Experts are of the opinion that digital deals are coming at a slower pace and there is no improvement in that front as compared to previous quarters.