Coronavirus attack to slow down IT growth

TCS, Infosys and HCL will be hit by the reduced technology spending by clients in the US and Europe.

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Bengaluru | Mumbai: India’s giant IT services companies will see a significant slowdown in growth during this financial year as they grapple with the upheaval wrought by the Covid-19 pandemic, according to analysts.

Top software exporters – Tata Consultancy Services, Infosys and HCL Technologies — will be impacted by the reduced technology spending by clients in the US and Europe following lockdowns across the globe, experts said.

Brokerage HDFC securities expects revenue of the IT sector to reduce by 2-7% due to a slowdown in decision making in the next six months while businesses evaluate the impact of the virus that is disrupting the global economy.


“We expect revenue in the (first two quarters of this financial year) to be largely impacted by delay in pipeline conversion and pricing impact on core business,” wrote analysts Apurva Prasad, Amit Chandra and Vinesh Vala in a note.

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India’s software and services exports grew 8.1% to $147 billion in fiscal year 2020, according to the National Association of Software and Services Companies.

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“In the near future, IT companies could feel the heat of pricing pressure, revenue loss due to lockdown (in India and many countries globally), client bankruptcy and slower client decision making led by lower discretionary spends,” wrote Devang Bhatt at brokerage ICICI Direct.

Indian IT firms are expected to follow Accenture, which lowered its growth forecast to 3-6% from 6-8% due to business impact from the Covid-19 impact.

Travel Restrictions Delaying Project Execution
Infosys and HCL Technologies, the second and third largest IT services firm, give annual forecasts, while Wipro gives revenue guidance for a quarter. These firms are yet to announce dates for their quarterly results. Typically, Indian IT firms such as TCS and Infosys kick off the results calendar in the second week of April.

Queries sent to TCS, Infosys and Wipro did not elicit responses until press time Global travel restrictions are already delaying the execution of existing projects and hurting the ability of IT companies to ramp up projects and close deals, as crisis-hit clients delay allocation of funds. Further, pricing pressure will lead to lower deal wins and renewal, experts said.
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Manik Taneja, analyst with brokerage Emkay Global, while moderating expectations by factoring a weak first half, said that it is “difficult to assess the extent of damage due to the fastevolving situation.”

In recent weeks, Indian firms have already faced cancellations of projects by clients across sectors due to the reduction in air travel and closing of cities and countries to embrace social distancing to tackle the pandemic.
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Goldman Sachs last week said that the spread of Coronavirus has pushed the global economy into a recession of historic proportions, with China and India being the exception in GDP growth.

Clients from industries such as travel, hospitality, airlines, retail, hi-tech, oil & gas, financial services, and manufacturing are the most affected by the Coronavirus, according to analysts. They also believe that Indian IT could see an indirect impact from China’s economic slowdown.
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