Sluggish US mkt keeps BFSI biz under pressure

Central banks are not comfortable enough to reduce interest rates as inflation is still not in their comfortable zone. That is the reason that rates are not likely to come down in the near future - V Balakrishnan, Chairman, Exfinity Ventures, & former CFO of Infosys

Global headwinds weigh

• BFSI vertical declined in Q2 in growth terms
• High interest rate not likely to come down soon
• Mortgage, capital market most impacted segments

Bengaluru: Financial services vertical of global and Indian IT firms is facing the maximum stress owing to macroeconomic uncertainties and it’s unlikely to change till the next year. Experts are of the opinion that despite contributing the maximum share to most IT firms’ revenues, BFSI (banking, financial services and insurance) vertical may not see much revival in the US and European geographies.

“BFSI is most prone to macroeconomic fluctuations. That is the reason that the growth in BFSI vertical remains low as compared to other verticals like healthcare or manufacturing,” Pareekh Jain, an IT outsourcing advisor & founder, Pareekh Consulting.

Reflection of such performance came from Cognizant, which announced its results on November 1. BFSI, which is the largest vertical for the Nasdaq-listed IT firm, saw four per cent decline in the revenue from this vertical on year-on-year basis.

“Within financial services, revenue declined four per cent, reflecting the softer demand environment across regions and sub-industries. This decline was partially offset by the benefit from the resale of third-party products in connection with our integrated offering strategy,” Jan Siegmund, Chief Financial Officer of Cognizant, said during conference call.

Such trend was earlier seen among Indian IT firms. Infosys saw a decline of 7.3 per cent YoY basis in its revenue during the second quarter from its BFSI vertical. Similarly, Tata Consultancy Services (TCS) witnessed a decline a 0.5 per cent in its BFSI revenue during this period.

Management of various IT firms have said that within BFSI vertical; mortgage, and capital markets have been facing slowdown. Higher interest rate regime ruling in the US and European Union (EU) has dented growth in the mortgage segment of the BFSI vertical.

Many experts also said that the slowdown in BFSI vertical, however, is leading to more cost takeout deals coming to the market place. That is the reason that many large deals have been won in recent quarters from BFSI segment. Infosys won around five large deals from the BFSI vertical in the September quarter.

According to sources in the know, things may not improve in the coming two quarters given the high interest rate regime in the developed economies.

“Inflation has definitely come down both in the US and Europe. However, central banks are not comfortable enough to reduce interest rates as inflation is still not in their comfortable zone. That is the reason that rates are not likely to come down in the near future,” V Balakrishnan, chairman, Exfinity Ventures, & former CFO of Infosys, told Bizz Buzz.