Shrinking IT spend delays digital projects

Bengaluru: Digital projects of small tenure are facing delays in some companies as clients are getting cautious on IT spending decisions. Though this is not a worrying trend yet, recession fears in the US economy and slowdown fears in the European economy are likely to create further delays in decision making in the near future.

"We see some delays in digital projects, prompting newly hired engineers to wait for the project. However, this is limited to a few companies and this can't be treated as a trend. We have to wait and watch for arriving at the conclusion that decision-making is getting delayed," said an industry source who works with the top 10-IT companies closely on projects.

Global consultancy firm Gartner has already projected the spend on IT services to slow down this year as compared to 2021. According to the global consulting firm, spend on IT services is likely to grow by 7.9 per cent as compared to 10.7 per cent in 2021. While many economists are projecting a mild recession in the US, OECD has predicted slowdown in the Europe amid high inflation owing to Russia-Ukraine war. Amid such commentary, India's $194 billion IT sector is likely to feel some tremors in the near-term with possible client-specific issues and delay in decision-making in 2022.

Against this backdrop, JP Morgan has downgraded Indian IT sector. "We see peak revenue growth behind us and EBIT margins trending down from inflation, mean reversion. While the bottom-up outlook remains positive from most services, software and SaaS names YTD, and the tech spending cycle remains buoyant structurally, we feel there are more downside risks to current earnings assumptions, said JP Morgan in a note. According to the global brokerage firm, slowdown is likely to worsen in 2023 partly due to a potential decline in orders from the key market of US, where economic growth has started to weaken.

Meanwhile, management commentary has also indicated early concerns of possible slowdown. Tata Consultancy Services has flagged up concerns over possible slowdown in global growth. It, however, has said slowing growth may not lead to low spending though deal tenures are getting shorter in recent years. Infosys' management has said that demand environment remained robust so far with no concerns from clients at this point of time.