IT contracts from Europe hit slow lane

- TCS cautious about IT spending in EU

- Many mid-tier cos also shown cautious optimism about this region

- Wipro was confident of driving growth

- Ongoing Russia-Ukraine war created an energy crisis in this region

- It resulted in enormous pressure on supply chain

- High inflation eroded the spending ability of many enterprises

Bengaluru: Outsourcing contracts from European region is likely to slow down in the January-March period, which is expected to be a drag on many Indian IT services companies' growth numbers. According to industry experts, after showing some improvement in October-December period, enterprises are witnessing slowdown deepening owing to the ongoing Russia-Ukraine war.

"There was a slight dip in Q3 ACV (annual contract value) numbers for EMEA with full year only six per cent increase in the managed service outsourcing (EMEA mostly lead by UK, DACH- Germany, Austria, Switzerland and France). We did see some pull back from decisions in Q3 but situation sort of improved in Q4. However, we anticipate a slow Q1 (January-March quarter). Energy issues are of concerns in Europe with Ukraine war still going on. The prolonged war is having impact on supply chain, energy and that is impacting different industries," Mrinal Rai, principal analyst at ISG told Bizz Buzz.

Clients in Europe are strongly focusing on initiatives such as ESG, Electric Vehicles, Phygital (physical+digital) technologies, and digital twins among others," he added. In the third quarter ended December, the Tata Group company drew a revenue of 16 per cent from continental Europe, while around 15.6 per cent was contributed by the UK. Most big firms including Infosys, HCL Tech, Wipro, Tech Mahindra and a host of tier-II companies draw around 30 per cent their revenues from the European continent. Europe contributed 25.8 per cent revenue to Infosys in the third quarter of ongoing financial year. In the third quarter of FY23, management of different companies had varied views on the growth prospects in Europe. While TCS management was cautious about IT spending in this region, Wipro was confident of driving growth. Many mid-tier companies had also shown cautious optimism about this region.

The ongoing Russia-Ukraine war with no sight of an early ending has created an energy crisis in this region apart from putting enormous pressure on supply chain. However, less than harsh winter has stabilized energy prices to an extent. But, disruption to supply chain and high inflation have eroded the spending ability of many enterprises. In turn, many companies are looking out for cost takeout deals that can save costs.

According to global consultancy firm Gartner, IT spending in EMEA is forecast to touch $1.3 trillion in 2023, an increase of 3.7 per cent from last year.

There was a slight dip in Q3 ACV (annual contract value) numbers for EMEA with full year only 6% increase in the managed service outsourcing (EMEA mostly lead by UK, DACH- Germany, Austria, Switzerland and France). However, we anticipate a slow March qrtr. Energy issues are of concerns in Europe with Ukraine war still going on.

-Mrinal Rai, Principal Analyst, ISG